How Fintech is Changing the Way We Handle Money
Finance has been rapidly changing especially due to the increase in the use of financial technology also known as fintech. A once conventional environment of banking and financial companies is gradually being revolutionized by new-age of technologies that are changing the face of finance management. Fintech is the improvement in the delivery, convenience, and individualized solutions in fin services including Mobile Banking, Digital Payments, Blockchain and AI-advisors. In this article, we will explore more about what fintech is, how it is revolutionizing the industry, and the effects it has on our day-to-day lives.
Fintech investments in 2021 was about $210 billion and this is a clear indication of the confidence that investors have in the ability of fintech to compete with traditional banks.
1. Revolutionizing Payments with Digital Wallets
Fintech has also led to the emergence of digital wallets as one of the most obvious effects. Services such as PayPal, Apple Pay, and Google Wallet among others have greatly facilitated transactions that were hitherto done only using cash or plastic cards. These are applications that hold one’s payment information and enable him or her to make payments through a mobile phone.
However, digital wallets are not only convenient to use as we have seen above. Some of these apps have added features such as the peer-to-peer (P2P) where one can transfer money to another person or even a family member and loyalty programs where points are automatically accumulated and redeemed. This is not only accelerating the payment process but is also moving the society away from the conventional banking systems.
2. Empowering Consumers with Mobile Banking
Mobile banking applications have become very popular in the current world and are used in managing finances. Some of the benefits that have made people opt for mobile money include; they are more convenient and easily accessible as compared to the conventional banks. This means that with the use of Mobile banking, customers can be able to see their account statements, perform transactions, pay bills and even apply for a loan trought the mobile application.
It is strategically useful especially to those in the rural or hard-to-reach areas since it may be difficult for them to locate a conventional bank. Fintech has paved the way for banking to be offered through mobile applications, thus giving more people the means to get the services that they need.
3. Streamlining Investments with Robo-Advisors
Investing has been considered as a process that is quite complex and need the services of professional financial advisors. Nonetheless, fintech has brought about investment by making it easier through the use of robo-advisors. These automated platforms use algorithms as well as data analysis to offer tailored investment advice as well as portfolio management.
Latterly, robo advisors such as Betterment and Wealthfront have provided a way for the common man to invest due to low charges, simplified platforms and low entry barriers. These are platforms that come up with various investment strategies that suit the client’s needs in regards to financial objectives, risk appetite and time frame – all this without the need for human interaction.
4. Enhancing Security with Blockchain Technology
The most popular use of Blockchain technology is in Cryptocurrencies and Digital Wallets and it is one of the best technologies for ensuring security in financial transactions. Unlike the conventional models, the information regarding the transactions is not stored in a single place but rather in a network of computers and hence no one can alter the records. This way of organization makes it almost impossible for someone to hack into your financial data and manipulate it.
However, Blockchain has more uses than only in the domain of Cryptocurrencies. It is also rocking other parts of finance such as cross-border payments, contracts, and identity management (KYC). For instance, in cross-border transactions, blockchain removes the intermediary hence making the process faster and cheaper. It also offers a secure means of confirmation of individuals’ identity thereby lowering the incidence of fraud and assisting in adherence to the law.
5. Improving Access to Credit with Peer-to-Peer Lending
The emergence of new P2P platforms in the last few years is evidence that the alternative lending is transforming the industry. Lending platforms are a means through which the borrowers and the lenders are connected without the interference of the banking systems. This arrangement also has its advantages in that the borrowers are able to borrow with ease and at a lower cost while on the other hand the investors get higher returns from their investment.
There is LendingClub and Prosper among others that have made it easier for individuals and small businesses to access loans and the process is not as complicated as when dealing with banks. This shows that through P2P lending, technology has been able to make the society have a better and easier way of accessing credit.
6. Personalizing Financial Services with AI and Big Data
AI and Big Data are the main trends of the fintech, which contributes to the development of individualized financial products. For instance, chatbots are capable of offering customer services and financial services while big data analytics can be applied in designing financial products that suit specific clients.
Fintech companies are leveraging on these technologies in order to dissect large amounts of data about consumers including spending patterns and credit history in order to provide tailored advice and solutions. This level of personalization assists people to make better decisions on their financial situations and thus enhance their financial status.
7. The Concept of Fintech in the Light of Financial Inclusion
Fintech is assisting in the Finance by providing a means through which the unbanked population can be able to access the financial services. Conventional banking services are often unavailable to many people in many countries and especially in the developing world due to factors such as distance, cost or lack of facilities. Mobile banking and other fintech solutions are now stepping in to meet this gap of offering the much needed financial services that are both cheap and convenient.
For instance, in areas with limited banking services, the mobile applications help the users to check their account statements, transfer money, and pay bills using a mobile phone. Other services like digital wallets and P2P lending also contribute to the expanding of the financial services because one does not need a bank account to access them.
Fintech is, therefore, improving the delivery and uptake of financial services and thus improving the economic status and reducing poverty in the areas affected.
8. Transforming Insurance with Insurtech
It's important to note that insurtech is a part of Finance industry which is using technology to transform the insurance industry with regard to efficiency, cost and client experience in the insurance business processing. Insurtech companies are leveraging on Artificial Intelligence, Big Data, and Blockchain in order to come up with better solutions for the insurance sector.
For instance, in underwriting, the use of artificial intelligence helps in assessing risks and coming up with appropriate policies and faster than the traditional systems. On the other hand, the use of Blockchain technology can assist in the creation of a proper system of recording insurance claims to reduce on fraud and simplify the process of claiming.
Insurtech is also used in developing new insurance products that are suitable for the present digital world. For example, Microinsurance offer insurance for specific situations or for a limited time and as such makes insurance more accessible and affordable to many people.
9. The Future of Fintech
Fintech is poised to bring more change in the Future. The following are some of the trends that are likely to define the future of the financial industry as technology advances further on. Let’s take a closer look at some of the most promising trends that will likely define fintech in the coming years:
Embedded Finance
Embedded finance is the most revolutionary trends in the financial industry. This trend is called Fintech, it means that financial services are being offered on non financial platforms, for instance, lending, insurance, and payment services are offered within existing apps that consumers use, including e-commerce sites, social media platforms.
Think about taking a loan at the checkout of an online store or getting an insurance policy while booking a flight or a hotel room and all this within the same platform. This smooth integration not only increases the opportunity of financial services but also improve the quality of services. This means that as the embedded finance model expands, the distinction between the traditional banks and technology companies will become further fuzzy, which will lead to heightened rivalry as well as creativity in the provision of financial services.
Open Banking
One of the trends that is expected to revolutionize the financial services is Open banking. It entails the banks offering API which are interfaces that enable third party developers to develop new applications and services which are linked to the bank. This approach provides the consumers with an opportunity to manage their financial information and get access to a number of services that are tailored to their needs.
Consumers are allowed to disclose banking data to other applications which can assist them in managing their finances better, investing wisely or getting the right credit deals. Open banking is a part of traditional financial services because they are required to share their data and this can be done through partnering with fintech startups in the creation of new services that meet customer needs.
Decentralized Finance
Decentralized finance (DeFi) is a system that is rapidly disrupting the conventional Finance by providing a decentralized way of accessing financial services. DeFi which operates on blockchain and smart contracts enables users to access services such as lending, borrowing, trading and even investing without having to go through middlemen.
DeFi has the possibility of making finance more inclusive to everyone who has been excluded by the traditional institutions. Its openness because all the operations are saved on the public ledger and security because the process is not centralized make it a great instrument for financial inclusion. This means that as the DeFi platforms expand, we should expect more and more creative uses of the technology such as insurance, prediction markets and even tokenised real estate.
Regtech
Regulatory technology or regtech is a relatively new term as number of regulations grows every day. Regtechs are solutions that use n Artificial Intelligence, Big Data, and Blockchain to help the financial institutions to save time and money on the compliance process.
AI tool can go through many transactions to detect the form of fraud that is linked to money laundering while the blockchain can assist in generating an immutable record of all transactions that have been done. Therefore, as more and new rules emerge, for instance, in the area of data protection and AML, the requirement for Regtech solutions will rise. Thus, Regtech in the financial institutions will assist in the comprehension of the regulation in the market, reducing the costs of compliance and managing risks.
Artificial Intelligence and Machine Learning
AI and ML are already revolutionising the fintech industry and are expected to make further growth in the coming future. These technologies are actually used in automating certain tasks such as fraud detection, credit scoring, customer service among other services hence enhancing the efficiency of financial services.
AI and ML will become more prominent in the future of financial services and help in the personalization of the services. For instance, AI algorithms can identify a user’s spending patterns, credit history, and risk appetite, and then recommend investment options or a savings plan. Furthermore, the ML models have the capability of learning from the new data that comes their way and therefore are very useful in financial predictions.
These technologies are also altering the way that the financial institutions engage with the consumers. For example, AI chatbots can give the customer a quick and efficient response to their query whereas ML can understand the customer’s needs and offer solutions in advance. The increasing advancements in AI and ML will be key to the design of the future financial products and services.
The emergence of the Digital Currencies
CBDCs and stablecoins are expected to the key market participants in the new generation of the financial system. CBDCs are the digital currency that is issued by the central banks, which are the digital form of fiat currency and has the potential to revolutionize the payment systems, enhance the financial inclusion and reduce the cost of the cross border transactions.
These are cryptocurrencies that are pegged on stable assets like fiat currencies; apart from the benefits that come with the use of cryptocurrencies which include fast and secure transactions, stable coins offer the advantage of stability in value.
Concerning the fintech firms, the emergence of the digital currencies offers them the best chance to crate new products and/or services that can be embraced within this new environment. For instance, the fintech firms may design wallets that are integrated with CBDCs only or payment platforms that would facilitate the conversion of stablecoins. It is therefore expected that as more people come into the use of digital currencies they will be instrumental in the development of the fintech industry.
Sustainability and Ethical Finance
Due to the increasing concern of the environmental and social impacts, the investors are looking for the financial products which are sustainable and socially responsible. This is where fintech firms have a great chance to step in and offer their solutions that would help ensure sustainability and social impact.
For instance, the fintech companies can offer consumers the ability to invest in green bonds or sustainable funds or develop applications that would assist people to monitor the carbon footprint of their financial activities. Blockchain could also be used in the sustainable finance to enhance the accountability of the monies through ensuring that there is a record of how the monies received are used.
In the future, sustainability and ethical finance will be most probably two of the most important factors that will define the success of Fintech companies. Those values are the key to attracting the socially aware consumers and creating a more just and sustainable financial industry.
Conclusion
It is not just about the technology that is being used in handling of money but it is about the transformation of the financial sector. From increasing the convenience of payments and banking to creating new investment channels and bettering the access to credit, fintech is enabling people and companies to manage their financial prospects.
The role of fintech will expand as technology progresses and will create new prospects and issues for the financial sector. At Idealogic, this is our vision to be the pioneers of fintech innovation. We are a team with extensive experience in creating innovative fintech products that will enable your business to keep pace with technological advancements and satisfy the requirements of your consumers. Please contact us to find out how we can assist you in the complex and constantly evolving environment of fintech and reach your objectives.
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