The early days of financial technology, or fintech, specifically referred to the back-door tech used by banks and other financial companies behind the scenes. But with the advent of blockchain technology, cryptocurrency, and other consumer-focused financial companies, “fintech” has taken on a whole new meaning.
Nowadays, fintech refers to any type of technology that will make our financial processes easier. This includes everything from applications that consumers use regularly to manage their finances to technology directed at financial professionals in the industry. These all benefit the consumer in the end, but some are a little more accessible to the everyman than others.
The boom around fintech startups isn’t slowing down anytime soon. The fintech industry is growing by a rate of around 23 percent each year, and US investments in fintech companies reached $12.4 billion in 2018. The goal of fintech companies is to slash associated costs, improve available services, and ultimately provide significant benefits to the consumers. So, what’s on the horizon for fintech now? With financial regulations settling into place after the disruptive advent of new technologies and financial institutions finally starting to acknowledge the new tech and make changes, what can we look forward to?
Real-World Implications of Fintech
The continued development of fintech carries some important real-world implications with it. Firstly, the so-called “sharing economy” that began with ride shares, taxis, and even hotel rooms (think Airbnb) is moving into the financial services industry in earnest. By “sharing economy,” we are referring to decentralized asset ownership and using technology to look for matches between providers and users of capital. In layman’s terms, this means people are no longer exclusively turning to banks to meet their financial needs. There are so many more options now for banking services, and they are becoming easier for consumers to access and understand.
Digital applications for wealth management, payments, insurance, and even retail banking are becoming a part of the mainstream. These developments are no longer just a trendy side effort; they command full teams, budgets, and resources at established companies.
Blockchain technology is entering into the financial sector with increasing speed, disrupting a number of established processes and changing things for the better. With blockchain’s increased speed of processing transactions, decentralization, and immutable records, fintech companies using the technology can experience lower costs, less human error, and increased confidence from their customer base. Establishing trust is vital in these developing fintech startups, and blockchain can help companies provide it.
Fintech incubators are an upcoming trend for the industry in the next year or so. Because of programs like Barclays Accelerator, FinLab, and others, innovators and creators have increased opportunities to bring their new projects to life. The incubator setting provides startups with all the things they will need for a quick launch of their business, including startup capital, mentoring, expert advice, and more.
Fintech incubators cover a range of fields, from blockchain and cryptocurrency, to mobile technologies and cloud data, to the Internet of Things (or IoT). IoT is a new term that’s been tossed around a lot in the last few years, and it refers to the idea of the interconnection of all devices both to the Internet and to each other.
A Continued Move Away from Traditional Banking
Traditional banks are becoming less and less necessary with the advent of fintech companies and new technology. Customers don’t need a physical branch anymore to take care of their banking needs—digital banks are the new normal. Many reimburse ATM fees and offer fee-free checking and savings accounts, and customers who look to their mobile devices and computers to complete their banking needs are eagerly taking up digital banks. Entering a branch feels like an unnecessary hassle in our digital age. Digital banks provide greater client freedom and personalization, and offer fast delivery of products and services to the customer.
Changing to More Advanced Credit Models
In the past, determining a client’s credit rating was done by examining social-demographic data; it should be no surprise that these test results came with a high margin of error, influencing the credit risk of the entire portfolio. Fintech companies are now using alternative credit decisioning models (ACD), which are increasing the efficiency of credit risk assessment. These ACD models use social media data, location and transaction records, and machine learning to assess client credit risk.
Cyber-Security and the Advent of Regtech
In any financial industry, data security is always a concern. Fintech is no different. As more and more customer data is being stored in digital formats, the concerns about cyber-security grow. Blockchain technology is poised to alleviate some of these customer concerns about the security of their information. Regulation of the fintech industry is also a source of anxiety, giving rise to an entirely new industry of regulation to meet the potential challenges: regtech.
Keep an eye on these new developments in fintech and try some of these companies out for yourself. You might be surprised how easily you’ll adapt!