Traditional financial institutions, historically, have run on conservative wheels, where the innovation had been far less, the customer’s experiences and trust had been mostly lacking and the adoption of technology was limited to just secured databases, credit cards, ATM and internet banking at the most.
After the 2008 recession, when people’s trust in banks was rock bottom, a new Fintech industry dominated by startups, arrived on the scene that tried to fill this gap with technological innovations. It capitalized on the new emerging technologies of smartphones, cloud computing, big data, artificial intelligence, blockchain to create a customer-first experience.
Role of Fintech
Primarily, the Fintech industry is spearheaded by technology startups that are providing new-age services and products to cater to the market of banking, insurance, lending and wealth management. As per a statistic, there were approx 2700 Fintech startups worldwide till Oct-2019 and Goldman Sachs estimates that the global market of Fintech in 2020, currently stands at $4.7 trillion.
Let us see how Fintech is playing a disruptive role in the banking and finance sectors.
Fintech Apps
In 2020, there are an estimated 3.5 billion smartphone users worldwide which is projected to grow to 3.8 billion in 2021. Capitalizing on this trend, the Fintech companies are following the mobile-first approach by creating innovative apps and giving easy access to users to fulfill their financial needs of banking, loans, investments, trading, digital wallets, etc.
By creating one-click access to their financial services and products on smartphones, Fintech companies have able to attract a huge population of tech-savvy millennials. This is a huge contrast to traditional banking where it was never this convenient for users to access financial services.
Risk Management
There are many types of risks associated with banking and finances, the most prominent of those are credit risk, market risk, and fraud risk. Fintech industry is making use of big data, artificial intelligence, and blockchain technology to mitigate risk more effectively than ever before.
They are using machine learning and big data to predict the dip or crash in the market, evaluate the creditworthiness of a person for approving loans and detect banking frauds. Additionally, blockchain enables distributed ledger and decentralized transaction that is more transparent and secure, thus helping to reduce frauds.
According to Deltec Bank, Bahamas – “It is not only the startups, but even the traditional banks are now aggressively adopting these disruptive technologies to mitigate financial risks.” In fact, it is estimated that 77% of the financial institutions are expected to adopt blockchain technology in the year 2020.
Wealth Management
Traditionally, financial institutes used to provide wealth management services only to the affluent peoples of society. This left behind a large section of the middle-class people who usually have limited knowledge of investment and could not afford traditional wealth management services. Many Fintech startups identified this untapped market and have come up with free or low-cost platforms that provide automated investment advice to people. This service is also known as Robo-advisors.
Robo-advisors rely on algorithms that recommend the best investment products to the users based on their current financial portfolio. Such ease of access to wealth management services has encouraged many middle-class people to start investing. It has also created more trust factors by eliminating the traditional human advisors who often used to push products keeping their commissions in mind and not the client’s interest.
Raising Loans and Money
Getting loans and credits from traditional financial institutes used to be a lengthy process that required too much paperwork and defeated the purpose when the loan was needed as an emergency. Identifying this gap many startups have emerged that offer hassle-free microloan with as easy as a single click on their platform.
This is not all, some startups offer peer to peer lending platforms by connecting borrowers with lenders where the individuals can do lending transactions based on mutual trusts. Whereas other online platforms have also emerged where people can raise money by crowdfunding, from angel investors and VCs for their own startups or social causes.
As you can see Fintech has indeed revolutionized this space by creating so many types of lending platforms for different needs.
Digital Wallet
Digital wallets are changing the way people are spending money now. Digital wallet, store the credit/debit card information centrally and enables users to make seamless transactions. People can use digital wallets not only for online transactions but also for offline purchases by scanning the barcodes from the camera phone.
People can also do peer to peer transactions from their e-wallet to someone else’s e-wallet.
Apart from the obvious convenience, digital wallet companies also offer their own loyalty and cashback programs that make it more lucrative for end users.
Conclusion
If we observe closely, the Fintech impacts that we discussed above are directly or indirectly focused on creating a great experience for the end-users. And this is just the tip of the iceberg, the Fintech revolution does not look like slowing down anytime soon. Although Fintech has become synonymous with thousands of young startups globally, even the traditional banks are adopting Fintech to keep themselves abreast with the changing time and stay relevant.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.
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