Finance has historically been an industry of big players. Due to the large amounts of capital needed and the existing government regulations, its entry barriers have restricted the participation of many different agents. Although important barriers are still in place, the sector has started to see how innovations disrupt the status quo. Startups are redefining in many ways what finance is all about.
This has been in part thanks to the possibilities that FinTech offers; let us remember it combines traditional finance with groundbreaking technology. Creativity has also played a crucial role in this innovative process. It has helped deliver value to customers in ways that were unfeasible just a couple of years ago. Technologies like AI and Blockchain are pairing up with new business models to offer a wide range of novel financial products and services. In a previous post we analyzed some of the most important FinTech companies to watch. We’ve also discussed here on our Koombea blog some of the FinTech trends to watch throughout this year. This post complements these essential readings by discussing some of the specific ways in which FinTech startups are redefining finance.
Digitalization & Data
The first and most obvious way in which FinTech is redefining the financial industry is through the digitalization of a broad spectrum of processes. Brick-and-mortar financial institutions are not going to disappear anytime soon, but their traditional role is being challenged. Activities that were once performed by humans are now being delegated to AI algorithms. The same goes for certain intermediaries; technology has shortened distances between users and the services they need.
An important part of this digitalization process has been the rise of powerful apps. FinTech startups have successfully understood the power of delivering technology to users in simple ways that everyone can understand. That’s why we can say that behind every great FinTech idea, there is a great app.
Another important part of this process has been the unprecedented growth and availability of data. This, paired up with the power to process it, has also allowed new inventions to arise. The vast amount of data allows new financial models to be developed with great accuracy.
Although all of this sounds great, it also entails some challenges. One of the most important ones is to overcome security risks. As technology becomes more complex, so does theft. However, there is no need to worry. Although challenging, new safe technologies are on the rise and guaranteeing users safe operations.
Traditionally, financial institutions have been the preferred administrators of important assets and large quantities of money. This is starting to change as new personal financial management tools are made available. Some of these allow users flexibility levels never seen before.
Certain solutions aren’t even that complicated. A perfect example of a simple innovative service is what the FinTech industry calls “pockets”. Pockets give users the possibility to save and manage their money according to their needs. Money can be set apart and destined for specific purposes. In this way, everyone can easily manage their resources. This option even allows making projections on how much someone can save given certain parameters.
For the case of investments, something similar has occurred. Powerful apps now make it possible to manage various assets directly from the palm of your hand. As a result, activities like personal stock management have become very popular and will surely become stronger in time.
The idea of using algorithms to calculate if someone is eligible for a credit is not new. However, the scale and scope at which it is being done, thanks to new technologies like Machine Learning, are redefining the idea of how loans should be managed. FinTech apps are experimenting with new business models to hand out loans to users that meet certain criteria. This shortens the time for a loan to be handed out while reducing costs and inefficiencies. How far this model will expand is yet something to find out, but the possibilities and the current results lead to conclude that the future seems bright.
We’ve already given digital wallets some consideration; it is the standard Blockchain functionality. This has been quickly adopted in highly industrialized countries where the appropriate regulations are in place. It allows users to migrate from a mostly cash model to a fully digital one, thus allowing for robust traceability of operations and greater connectivity of the financial ecosystem.
Corporations have taken notice of this. Other players like Square and WeChat are redefining through their apps how ordinary day to day money works. Whether a small seller or a corporate giant, having control over payments and relevant financial information in real-time is now possible.
Financial Inclusion and Wellbeing
There’s a saying that goes ‘money brings money’. Maybe that explains why certain groups like those with low income or the elderly have traditionally been excluded from financial services. The good thing is that FinTech is also changing this.
By changing the rules by which people are considered eligible for financial services, FinTech has made it possible to increase financial inclusion. These initiatives are particularly powerful in poverty-stricken areas as well as with young people without a proper credit score.
Lastly, an important way in which FinTech is helping change the landscape of finance is through the sector’s regulations. Governments have the growing responsibility of managing how traditional financial institutions and new ones operate for the benefit of society. I will not get tired of repeating that this is a major factor to keep an eye on, especially for new startups that are stepping on new grounds.
FinTech is one of the most dynamic and innovative sectors within the startup world. It is helping redefine life in many ways, and one can only imagine what will come. Although challenges exist, the opportunities surpass them.
Developing a FinTech business model is not something easy to do. At Koombea we know this from our more than 12 years of experience crafting world-class apps. One of our core services is developing FinTech apps, so we are familiar with the industry’s challenges and how they matter for your business.
Contact us for a free consultation to see how we can help you redefine the world’s financial landscape. We are not just tech lovers, we are also creative minds like you.