If there is one thing that can match the growth rate of fintech in any country, it is the industries and areas fintech has spread its branches to.
Financial technology is no more limited to just delivering financial solutions. It has become a much wider space that is:
• providing easy payment services,
• employing AI to improve assistance to customers,
• increasing financial inclusion,
• providing regulatory technologies to safeguard fintech applications, transactions, etc.
At the very beginning, fintech was mostly limited to providing backend solutions to various financial processes. This application was a major success. Anytime a technology is successful, inventors and innovators come up with more disruptive applications based on the technology to make the most of it. The same happened with fintech. It soon started branching out to more front-end applications which were more customer-oriented and user-friendly.
Disruptive concepts like cryptocurrencies such as bitcoin, litecoin, etc. and digital wallets started flooding the markets. They even started replacing the traditional method of transacting through paper money. Consumers started becoming more aware of the benefits and ease of maintaining digital wallets thereby opening up an entirely new market for fintech companies that were ready to explore this promising new technology.
However, the days which saw cryptocurrency and blockchain as the next big thing in fintech are fading and new trends are already setting in. What the next big thing in fintech is going to be depends a lot on the market we are talking about.
The role and opportunities that fintech holds in established and mature markets such as North America, South East Asia, and Europe would definitely be different from the ones in the Latin American and Africa. But, looking at the macro aspect of it, we can clearly say that use of fintech, specifically in providing customised financial services is becoming a trend in itself, irrespective of geography.
Currently, digital banking is on the rise when it comes to financial services across the world. Traditional banking has been around for what we can call, forever. Yet, only 69% adults (~3.8 billion people) globally, have access to the bank or to a mobile banking service provider. This leaves a big chunk of population in the cash space who still don’t have access to banking services and are majorly earning and spending in cash. This is an enticing number for companies who are trying to expand by making financial inclusion the central theme of their fintech expansion.
Growth in this space has been slow but promising. In 2011, only 51% of the global population had access to bank accounts. This number increased to 62% in 2014 and as mentioned earlier, has touched the 69% mark.
Apart from extending easy digital banking and financial services to the end consumers, small businesses have also come into the desired target audience of fintech firms. The otherwise neglected small and medium business sector has now risen in importance as valuable customers for fintech firms that can provide easy and quick credit facilities via a variety of financial solutions to small businesses. Using fintech tools and analytics, fintech lending firms have been providing quick loan origination, disbursement and easy repayment facilities and all this at interest rates lesser than that of traditional banks. The costs that the save from their tool-based underwriting services, they pass on to their customers, thereby increasing their consumer-base manifold within a short period of time.
Here are some ways in which fintech lending firms are increasing their margins and reducing their costs, they are:
• Automating workflows thereby reducing lead times
• Digitising underwriting processes thereby decreasing time required for approvals
• Passing on cost benefits to customers in the form of reduced interest rates
• Using predictive analysis to ascertain cash flow of small businesses
In today’s date fintech lending, credit cards, mortgage, and digital banking services have become major market opportunities and leading trends in the fintech world.
If there was ever a time when traditional banks need to gear up and prepare for the new, digitised world powered by smartphones and internet, it is now. Like Bill Gates said, “Banking is necessary, banks are not.” Fintech firms and mobile banking institutions are doing their job of ensuring every adult member of the population has a bank account and is transacting using their phones with ease, thereby creating banking population out of a non-banking one, slowly and steadily.
As mentioned earlier, with the rapid increase in adoption of smartphones and technological advances in general and digital banking services in particular, the idea of ensuring and protecting the interest of both parties does come to one’s mind. This is addressed by regtech, which basically is a shortened version of Regulatory technology.
Regulatory technology happens to be number #1 on the list of fintech trends list, currently. Traditional banking and financial services sector have always been completely enveloped by regulatory norms designed to protect the interests of both banks and customers. The rapid shift in banking preferences set forth the need for the same in the fintech industry. Fintech firms and digital financial services providers were expected to meet the regulatory requirements at all times. Keeping up with the constantly changing norms yet retaining their fluid and dynamic nature was becoming a bit difficult till regtech came into the scene.
Regtech consists of a group of companies that use SaaS (software as a service) to help ensure that fintech businesses are always in compliance with the continuously changing regulations.
The increase in the use of financial products, as discussed earlier, has led to rise in incidents such as data breaches, money laundering, cyber-attacks etc. Regtech uses technologies such as machine learning (ML), AI, and big data to reduce incidences of such activities. In fact, regtech is privy to underground marketplaces that operate online, something that even traditional compliance teams might not have access to.
Regtech mainly focuses on monitoring real time online transactions to monitor and identify any issues or irregularities. In case they do identify any irregularity, they immediately contact the financial institution to find out if any fraudulent activity is going on. By tracking and identifying threats of frauds, money laundering, or cyber-attacks, real time, fintech lending firms can mitigate their risks and costs that could occur due to funds lost or data compromised.
Regtech companies primarily collaborate with both fintech companies and regulatory bodies to give shape to what they do. They use cloud computing to collaborate and big data to mine data, analyse it and use it further in predictive analysis and ML to build algorithms that can carry out regulatory activities seamlessly.
This disruptive technology can run through huge amounts of data from banks while also running them through the regulatory data that they feed into their algorithms. By combining and husking information from these two sources, regtech companies are able to point out regulatory failures, thereby preventing banks from losing time and money in covering losses and penalties.
The fintech space will continue to see exponential growth. Right from turning the non-banking population towards digital banking, to ensuring all financial transactions and services are in complete compliance. With the large amount of data fintech institutions are collecting and mining these days, soon data will become the actual revenue stream for most fintech enterprises. Look out for more on this thought in our next post.