Revolution as a word has been used to refer to significant changes occurring over a period bringing visible developments in a particular field. Talking about Fintech, the technology is revolutionizing the financial services domain and has become a catch-all term nowadays that everyone in the financial services business is using for the ground-breaking changes in modern 21st-century banking and financial services sectors. It is providing competition to the existing financial institutions.
Fintech basically refer to financial technologies or technical platforms related to money transfer or transactions. The domain extends from banking to payments and investments. The term, though coined in 2011, is primarily used today for all the innovative financial technology. With this, it can be gathered, that the finance sector has a much wider span, and that is why Fintech is a very loose term that encompasses InsTech which includes insurance, RegTech when it is related to regulatory technology and others.
You must have used mobile payment wallet apps that help you transfer & receive money or to pay bills. These alternate payment apps have had a massive impact on banking & is undoubtedly disruptive for the traditional banking system in the modern world. Before moving on to its importance & implications, there are a few things that you all must know:
What Makes Fintech Disruptive?
Business growth seeks innovation in technology. Latest technologies let enterprises compete in the market rather than fade away with the changing world. Fintech is a dark horse in today’s market having grown with gigantic leaps and bounds and provides simplified value-added services. It has tremendously improved the banking sector. The transformation is such that the wait for a transaction is invalid now.
Traditional models of banks are facing challenges, as things like a visit to the bank and rummaging through piles of documents, trying to figure out which one to sign and looking with bewildered eyes at each passing individual are rapidly becoming a thing of the past. Now, on the internet backed new age world, people are opting for convenience. Moreover, they are also becoming increasingly aware of their possessions, they like to track their expenditures, and prefer to spend smart.
Traditional banks scoff at these Fintech startups, and it is true that the Fintech sector currently has an air of the wild west about it. Some Fintech companies are failing to carry out proper credit checks on borrowers, which result in repayment defaults and Fintech loan providers are often failing to notify credit agencies about the loans they have approved, which means the entire finance market has unreliable information about some textual borrowers. Despite these worries, global funding for Fintech is skyrocketing among the top 50 Fintech companies attracting 14.6 billion of capital since 2015 making an increase in funding of more than 40% in just 12 months. There is no doubt that Fintech is the one piece of technology that will profoundly affect the future of banking. It is not only helping people understand the banking process more lucidly, but is also rendering them independent with different innovations infused in it.
Revolutionary Innovations in the Financial Sector
An appetite for disruption is evident in today’s world, as for many it is possibly their golden chance to hit the jackpot at the end of the day. Many areas are already ripe for disruption.
To name a few:
1) Loans and Lending: Without the involvement of a bank or a middle person, Fintech disrupts the conventional way of peer to peer payments and converts it to frictionless payments. There is a complete elimination of payday loan provider. Short term loan disbursements are becoming smooth, and there is practically no interference of a bank while crowd funding to initiate a business.
2) Financial Planning: There are ‘Robo-advisors’ to provide you with any investment advice. Machine learning and artificial intelligence are also being deployed at scale to help investors find the information best suited to their financial needs making it a self-service model.
3) Virtual Currencies: Cryptocurrencies like Bitcoins, also act as a see-through to a revolutionized world of blockchain banking.
4) No Regulatory Constraints: With banks, come along a lot of regulations and formalities that one has to go through. The regulations for Fintech are still evolving and this attracts a growing number of millennials for the independence it provides.
Impact of Disruption
The advent of new business models: the disruptors are progressing fast with new innovative technology that is likely to lose a considerable part of the business to Fintech in the coming five years. Global investment in Fintech in the year 2014 alone tripled to $12 billion.
Introduction of sharing economy: We are witnessing the example of shared prosperity in various sectors, like cabs and hotel rooms. However, the future technology will take the place of an intermediary or bank to find matches for services & users.
While the technology is at par with its potential to help in economy & finance, it could also pose a threat to security making it a possible platform to aid terrorism & destabilizing the global financial system.
The cyber risk involved with financial technology also needs to be taken into consideration as security, privacy, money laundering and customer protection are the areas which need to be looked after. Advanced and complex technologies pose a cyber threat to banks making them vulnerable to the potential breach of massive data.
The new era of the advent of technology in every realm is undoubtedly a game changer for the smart world, but there must be some robust strategies which may help to protect the positive disruption thereby, making it easy to plan for the management of associated risks encountered on the way of adopting the same.