An increasingly interconnected world has allowed for innovation to flourish, all made possible by the presence of technology. The latest sector to benefit from the increase in innovation is finance, as Finance Technology — otherwise known as FinTech — transforms the dynamics of financial services and makes it more efficient and accessible for everybody involved. These services range from the usage of payment apps to the management of artificial intelligence and big data.
Accenture released a report detailing how investment in FinTech around the world has increased from $930 million in 2008 to more than $12 billion by early 2015. These figures are bound to go even higher, as FinTech does not just apply to the financial services sector but to all the 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.
1. Businesses can cut down on costs and reach customers better
A common problem faced by financial institutions is the need to expand a physical presence everywhere to cater to as many people as possible. They are then obliged to account for the additional costs incurred in the expansion through high banking fees to individuals and businesses. When people and businesses are unable to avail of much-needed financial services due to its high transaction costs and poorly designed services, a society’s capacity for economic growth and social welfare is not maximized.
Financial institutions and non-financial companies alike are discovering ways to reduce the hassle of transaction and maintain costumer satisfaction by providing some form of technological financial service as well. Mobile wallets such as the Emirates Digital Wallet and the newly-introduced Apple Pay help and encourage customers to manage their assets because they no longer need to find a physical office space to conduct transactions or receive assistance.
2. Financial literacy and inclusivity is fully maximized
The Economist Intelligence Unit’s report entitled the Next Frontier: The future of finance in the Middle East, Africa and South Asia writes that 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 can be made through 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.
3. SMEs have a better chance of funding themselves
Access to finance has been one of the greatest hurdles to SME growth. Peer-to-peer lending has made a significant impact on the SME funding market, because it allows borrowers to connect directly with people willing to lend money in return for interest.
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.
4. 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 componence 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.
AI is already relieving workers by automating mundane tasks such as filing, calendar maintenance, and making phone calls — in the near future, it is set to change the way both individuals and businesses gather information, make decisions, and connect with others.
5. Blockchain can help remedy vulnerabilities in the mainstream financial system
Blockchain holds promise because the ledgers cannot be tampered with without overwriting all the data in the system, which, given its wide distribution, seems highly unlikely. Additionally, 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.
R3, a consortium dedicated to researching and developing advanced distributed ledger technologies for global financial markets, represents prominent banks and financial institutions in the effort to standardize blockchain for mainstream use. It released the Corda platform, a sepcialized distributed ledger platform for the financial industry that gives APIs and codes for companies to build up blockchain-like applications, and is aimed at creating more efficiency in existing global financial markets.
Finding solutions may be difficult, and the research needed is extensive, but Fintech is capable of enriching lives by both taking over routine tasks and improving our acquisition of skills, as seen with FinTech taking the form of file storage to big data analysis, and mobile wallets to robo-advisers. The emergence of FinTech has many looking forward to a future where everybody is financially literate, has access to vital banking and financial services, and takes a more active role in the management of their money.
With all this promise of power, it isn’t difficult, then, to see why everybody now wants a slice of that FinTech pie.