Technological innovation has made itself clear in the emergence of smartphones and laptops - and a special branch of innovation called FinTech, short for Financial Technology, has helped make everybody’s lives simpler, especially with handling money. These services range from the usage of payment apps all the way to artificial intelligence and big data.
Accenture released a report which discovered that investment in fintech around the world has increased from $930 million in 2008 to more than $12 billion by early 2015. These figures have only one way to go but up, as FinTech does not apply exclusively to the financial services sector - it applies to all businesses that the financial services industry deals with. FinTech is a breath of fresh air in a world full of traditional financial institutions.
And what’s not to love about FinTech? There are a multitude of ways it can develop businesses and financial services, as well as improve customer service.
- Businesses can cut down on costs
Financial institutions struggle with expanding a physical presence in several places to cater to other people. Because this was formerly the only way they could reach out, the additional costs incurred in the expansion are accounted for through high banking fees to individuals and businesses. In this way, the capacity for economic growth and social welfare is not maximized because of the high transaction costs and poorly designed services.
Non-financial companies also find themselves becoming financial service providers as well. Mobile wallets like that of the Emirates Digital Wallet or the newly-introduced Apple Pay help make transactions more efficient and less of a hassle for both sides.
- Financial literacy and inclusivity is fully maximized
According to The Economist Intelligence Unit’s report entitled the Next Frontier: The future of finance in the Middle East, Africa and South Asia, with traditional methods, the strong cash-based system and the Know-Your-Customer (KYC) rules may be the reason why a lot of people in the Middle East are either underbanked or completely unbanked. They miss out on access to essential banking services like capital and credit because they are too far away from sources of information or they simply do not know.
When transactions transfer to smartphones and apps, it does not just lessen the cost of establishing a physical presence as well as that of acquiring and retaining customers - it also becomes more accessible to more people, especially women and the youth. In this way, FinTech allows for greater financial inclusion and financial deepening because the finance and banking industry is suddenly much closer.
- SMEs have a better chance of funding themselves
Peer-to-peer platforms were made possible because of low transaction costs. In the Middle East, Eureeca secured the first equity crowdfunding licence, and enables investors to fund startups in exchange for equity. Another platform, Emerginc Crowd, lets investors buy shared and bonds in emerging-market SMEs.
- Artificial Intelligence helps distribute advice and consultancy to more people
Firms are trying to apply FinTech through “robo-advisers” that use algorithms to develop investment strategies for investors. The accuracy of these AI calculations means they are becoming integrated into the core component of investment firms’ business models.
In China, mid-sized banks are testing robo-advisers on their online wealth-management platforms. This model could soon be seen in MEASA banks as well.
- Blockchain can help remedy vulnerabilities in the mainstream financial system
Blockchain sounds promising because the ledgers cannot be tampered with without overwriting all the data in the system, which, given its wide distribution, seems highly unlikely. It does not require a third party nor government backing.
In this way, it could help overcome some of the vulnerabilities in the mainstream financial system, such as robberies at central and commercial banks and money-laundering.