The fintech industry is on the rise. Massive innovation has helped money move more seamlessly and securely. Fintech has expanded so much that it is now offering specialized services such as bill payments, money transfers, investment management, and lending, just to name a few. Fintech companies are impacting the financial sector in ways never seen.
However, the radical shift from a physical retail establishment to a more digitized one has created new challenges. As many businesses are migrating their operations to the online space, the need for more secure and efficient solutions are becoming more critical than ever.
What Is Fintech?
Fintech or financial technology describes new technology that seeks to enhance and automate the delivery and usage of financial services. Its primary goal is to help business owners, companies, and consumers to efficiently manage their financial activities, processes, and lives by using specifically designed software and algorithms used on computers and smartphones.
Fintech also relates to an “emerging industry” that aims to use innovations in technology to improve activities in finance. The term fintech was originally used to describe the technology used on back-end systems at established financial institutions.
However, since that time period, it has evolved to include more consumer-oriented services. It now includes a variety of sectors and industries such as education, fundraising and non-profit, and investment management, just to name a few.
The Current Outlook And Future Trends
It appears that electronic currencies already predominate the financial systems of most countries. According to the Federal Reserve, the actual, physical U.S. currency that is in circulation is only about one-tenth of the money supply. The rest is in some type of digital form.
When the global pandemic hit, it amplified the need for digital services. Fewer people are using physical currencies and a growing number of people prefer to pay digitally.
Fintech innovation has impacted traditional banking, financial advice, trading, and products. Where once financial services were the territory of branches, salesmen, and desktops, now consumers have access to these services via their mobile phones.
With the use of new technologies such as artificial intelligence and machine learning, predictive behavioral analytics, and data-driven marketing, better financial decisions can be made.
Fintech firms continue to receive a massive amount of financial backing. In 2016, fintech startups received $17.4 billion in funding and were set to surpass this amount in 2017.
How It Has Supported High-Risk Businesses
As fintech continues to “disrupt” the finance industry, the current legacy-banking infrastructure is struggling to keep up. Many high-risk businesses that seek payment processing are labeled as “high-risk” by these financial institutions. This means that their transactions will be risky, slow, and even expensive. The legacy banking infrastructure also penalizes small and medium-sized businesses (SMEs) for making cross-border transactions.
Although solutions for P2P transactions exist, they are mostly aimed towards much larger companies. SMEs have had very few options due to their tight budgets.
However, more fintech companies are coming to the rescue of SMEs. They are developing more solutions where traditional banks are falling helplessly short. The adoption of cryptocurrencies is also becoming a viable solution.
Some fintech companies have developed infrastructures that essentially “bypass” existing legacy banking networks, by creating cross-border payment solutions. Many of these transactions can be done affordably and instantly.
In just the last few years, the fintech industry has impacted the payments industry, causing a “high level of disruption” with the upsurge of new technology. Some of these include the latest in innovative payment processes, new digital applications that help make easier payments, and the wider use of electronic devices for transferring money between accounts.
Where the traditional banking industry has “dropped the ball”, the fintech industry has enthusiastically picked it up and it has been running in full force ever since.