A portmanteau for “financial technology,” the fintech industry has become one of the top choices for investors, with 47% of them wanting to invest in it after financial services (76%).
Fintech is described as technologies that digitize or automate traditional financial systems. You can find its use, from accessing your bank accounts online to paying for your uber or investing in bitcoins.
The global fintech market was worth USD 127.66 Billion in 2018, and with 24% of CAGR, it is expected to reach at least USD 309.98 billion by 2022.
Previously, consumers were limited in using their money. They had to physically visit financial institutions to get any work done. But, now the fintech horizon has widened the scope of these services and has created more opportunities for customers by offering top-notch services with less or no cost.
This article will discuss fintech, how it works, its future, and the types of fintech innovations.
Fintech refers to the integration of technology into offering financial services to make the process seamless for customers. The use of this technology is in both back-end and up-front.
The world is heavily focused on fintech for payment processing, accounting, and e-commerce transactions. With the help of fintech, you can deposit checks online, pay bills, or move money from accounts.
Fintech is getting popular each day because it provides instant gratification to customers. That means extracting information that once took so much time is available within seconds.
Companies are spending a lot of money on hiring the best fintech service development firms that can help them leverage such a lucrative market.
Even consumers now show trust in using such technologies. An EY report found that 96% of people have heard of fintech transfer, and 75% have used it. Plus, 89% of SME adopters are willing to share their data with fintech companies.
A paper written by Arneris, Barberis & Ross bifurcates the fintech industry into four timelines-
1. Fintech 1.0 (1886-1967)
Here, we talk about the building blocks of financial globalization. The first time we could send financial information across borders via telegraph. In the 1950s, we saw the launch of credit cards to opt for cashless transactions.
2. Fintech 2.0 (1967-2008)
The era marked the emergence of the first ATM and the first handheld calculator in 1967. Later, in 1973, we saw the establishment of SWIFT (Society For Worldwide Interbank Financial Telecommunications) to initiate large volume payments. The 1980s was popularised due to the start of online payments, which grew with internet and e-commerce stores.
3. Fintech 3.0 (2008-Current)
The launch of Bitcoin v0.1 in 2009 marked a new era of the fintech industry. After this, many different cryptocurrencies were launched, followed by the biggest cryptocurrency crash in 2018. The fintech industry tremendously grew after so many people accessed the internet. Thus, in 2011 we saw the emergence of Google Wallet, followed by Apple Pay in 2014.
4. Fintech 3.5 (2008-Current)
The current era is all about adopting fintech and creating various market opportunities within countries. As of today, China and India make the highest usage, followed by the UK. Brazil and Australia. Consumers are now breaking away from traditional physical banking systems and using the latest solution quicker than the western market.
There are some significant reasons why people are so hyped-up for building fintech software solutions for their business, including-
1. Consumers have more choices of how they can manage their money.
Financial institutions have leveled up their game by entering into the tech market. Most of these institutions have built systems that can be remotely managed, giving consumers an upper hand in handling their money. The cost for fintech operations is pretty low and provide access to a range of information that helps banks understand customers’ demand. Leveraging such information allows innovation to seep in and develop many more features for the benefit of customers.
2. Remittance transfers are cheaper and faster.
Statistically, $32 billion are spent on cross-border remittances. So, if you are someone who regularly sends money to your family or friends in other countries, you are paying a big amount as transaction charges. However, using fintech, you save money on remittance transfer and get an opportunity to pay using blockchain infrastructure.
3. Leverage your personal financial advisor
The market is filled with financial management apps that take care of your money using transactional data or artificial intelligence. This helps understand the customer’s buying behavior and provides them with plans that suit their needs. These money handling apps evaluate your income and expenses for a month and encourage you to save more money.
4. Go cashless
Digital payment providers are a big part of the fintech industry. These help you go cashless and pay directly through your bank. 82% of Americans make digital payments, including in-app online purchases or even browser-based. The fintech industry has completely changed the dynamics of handling money. You can now quickly transfer money to people within seconds and at no extra cost.
5. Pay via bitcoins
Virtual wallets are also a fintech product, which allows you to store, receive and send money using cryptocurrencies. Many big companies like Subway, Dell, Expedia are accepting payments through bitcoins. These coins are built on blockchain technology which makes them relatively safe and easy to transfer.
Crypto is the latest currency that was created in 2009, presumably by developer Santoshi Nakamoto. The primary reason why the crypto market has flourished over the decade as it required no middle-man. These bitcoins are based on blockchain technology, where information is distributed across channels as blocks so, it becomes impossible to hack. These cryptocurrencies aren’t regulated nor tied to country norms, making it easier for people to make payments across borders. Many big companies have already started to accept cryptocurrencies like bitcoin and ethereum to make payments.
Blockchain technology is revolutionizing the fintech industry. Just like the name suggests, blockchains are blocks in long chains. The information stored in these is distributed across the entire network. So, cracking a single block wouldn’t give you any crucial information unless you have all the pieces together. Blockchain works as a ledger where the money transactions are stamped chronologically, which is important to extract accurate details. NFT marketplaces, IoT operating systems, medical data sharing, smart contracts, cryptocurrency exchange are also based on this technology.
3. Open banking
Open banking refers to the system where you give third-party financial advisors access to your personal and financial data. Cash management systems, paperless cheque deposits, personal financial advisor apps are all based on the open banking framework. There can be apps that can store your card information, and when in need, consumers can directly make payments or access cash via ATMs. We can also build a simple, accessible, and scalable API that helps in giving users an environment that is similar to a bank.
Insurtech is an amalgamation of insurance and technology. The insurance sector has drastically evolved from collecting and investing money to offering bundled insurance services with excellent returns. For the past decades, the risk and returns calculated have been done by mathematically-skilled actuaries. But, with AI and big data, we can now evaluate these numbers within seconds with much more clarity. These technologies will track data from all sources to get the numbers correct.
Regulatory technology is an entirely new concept altogether. This helps businesses comply with regulations and save them from penalties. The Thomson Reuters’ 2018 Cost of Compliance Report says that a new regulatory update is made in 7 minutes. So, sometimes it’s humanly impossible for businesses to keep track of all the regulations. Using advanced artificial intelligence helps against risks and increases accuracy. This way, businesses can unlock new opportunities without compromising on business regulations.
Robo-advisers are digital financial advisors who manage your investments and give you money advice based on your goals and buying trends. They also use AI and big data to go in-depth to make accurate recommendations. These use collective data from your bank account, debit and credit transactions, and past investments made to understand your financial behavior. Robo-advisors also help consumers handle their monetary expenses and encourage more savings.
Cybersecurity and fintech are linked to the core. With development comes the risk of cyber attacks that are bad for any organization. Large, global banks cannot afford to lose their customers because of even minor security issues. Banks and financial institutions are always subjected to security risks. It can be in the form of identity theft, money laundering, malware attacks, and spoofing. These threats can be resolved by adopting robust cybersecurity technologies.
The future of fintech is bright. The industry is filled with opportunities, and we can see many of your new technologies popping in. It has completely changed the way we conceive, use, or leverage financial services. And, with more people using financial services digitally, we will see more advanced features to make money actions easy and accessible.