In recent years, fintech has risen as a disruptive force to be reckoned with in the financial sector. Yet the use of technology to enhance the financial services industry is by no means a recent phenomenon. From the introduction of credit cards in the 1950s, internet banking in the 1990s and contactless payment technology since the turn of the millennium, the impact of these technologies has and continues to make waves across the financial services industry. These technologies have revolutionized the financial services industry by making it easier for people to invest, make payments and get loans.
If traditional banking was a combustion vehicle, fintech can be thought of as an electric car. Like traditional banking, combustion vehicles can be improved with better materials and turbochargers. But ultimately it is still running on a combustion engine, the same principles from 100 years ago. It is a reliable workhorse, but it cannot keep up with changes in the modern world.
To extend on the metaphor, electric vehicles are not hampered by modern issues such as rising fuel costs or environmental regulations; they can do more than is permitted by the fundamental principles of the combustion car.
It has taken the finance industry by storm because it radically defines the principles of finance by revolutionizing it with fundamental changes.
The fintech landscape includes both big tech companies, established financial institutions, as well as young start-ups which are disrupting existing financial models and financial corporations that are less integrated with technology. However, a similarity that connects them all is the desire to overhaul existing systems and make things faster and more efficient. The changes have seen major changes to asset management, business and personal loans, fundraising, money transfers and the way we invest.
Coming under a wide umbrella of financial service providers, Neobanks provide digital and mobile-first financial solutions payments, money transfers and lending. By making their operations entirely online, Neobanks have challenged traditional banks and are striving to make trips to the bank branch a relic of the past. They don’t have any physical offices and interact with clients via remote tools only – phone, email, and chat. Their apps are innovative and design-driven, with an interface that makes them very user friendly.
The banking royal commission in 2019 revealed how incumbents were acting contrary to consumer’s best interests. In turn, this has incited anti-Big-4 sentiment and has encouraged innovation in the banking industry which has seen a swathe of new, innovative super funds spring onto the scene. Furthermore, the financial landscape which has seen a shift towards customer experience and satisfaction, which has seen a further rise in popularity of this trend.
P2P lending can be thought of as an online marketplace which matches people looking for a loan with people who are looking to invest. It is a central platform which acts as “an introducer” between the two parties and makes money by charging both sides fees. While performing the functions of traditional lending, there are some notable advantages of the P2P lending which have seen it steal market share from traditional lenders.
The increasingly growing popularity of P2P loans is driven by its convenience and simplicity, making it easier for those who might not have the time for traditional loan applications. In part, this has been driven by use of tech-based processes which helps these lenders cut overheads, something that traditional banks struggle to offer.
P2P Lenders have also benefitted both lenders and borrowers by providing lenders with higher returns and borrowers with lower interest rates compared to traditional banks. Furthermore, P2P lenders are seen as more flexible about who they’re willing to work with. This works as plus point for those with lower credit ratings or murky financial histories – for better or worse!
Robo-advisers are digital platforms that provide automated, algorithm-driven financial advice with minimal human intervention.
Backed by venture capitalists, robo-advisers entered the scene drooling at the prospect of one day replacing human financial advisors to the ranks of bus drivers and retailers. It was multitrillion dollar industry, and they were expected to transform wealth management and inflict significant damage to the financial services sector.
Yet that change has not happened. Humans remain at the forefront of the delivery of financial services advisory given the nascency of their technology capabilities and the value of human interactions. However, they did ignite a change that continues to reverberate across wealth management by creating a digital movement in the wealth management industry which is expected to accelerate with the promise of AI and machine learning.
Fintech has emerged as a powerful theme in recent years, driven by the rapid adoption of cutting-edge technologies across the financial services industry. Looking ahead, as enhanced technology and the trend towards financial decentralisation and a cashless economy gains momentum, the future for fintech looks bright.
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