The world of fintech combines two of what could be the most complex subjects around - finance and technology. In both cases, it is often only those with a deeply vested interest in the subject matter that fully understand all of the terminology, the latest developments, their implications and the possibilities for the future. Even with that interest, both subjects are so multifaceted that it’s entirely possible to be an expert in one specific aspect of the subject and utterly ignorant of several other aspects. Add the fact that the technology side of the industry is constantly changing how the finance side works and it becomes quite a struggle to keep up.
Cryptocurrency is an excellent illustration of this point. The massive and sudden fluctuations of value in bitcoin have grabbed headlines for years, ensuring that almost everyone has at least heard of them. However, ask the average person on the street what exactly a crypto is and how they work and you’ll get mostly blank looks. Ask a finance journalist how the blockchain technology behind cryptocurrency functions and you’ll probably get the same.
That being the case, we’re going to take a look at some of the most interesting facts about fintech that you were probably unaware of; ways in which recent advances in technology have changed the way centuries-old financial institutions do business and may even have impacted you without you realising.
1. ‘Fintech’ means more than you might imagine
Part of what makes it difficult to fully comprehend fintech is the fact that the term itself is somewhat vague. Its first recorded use was in 1971 and, since then, it has been applied to a staggering array of systems, solutions, technologies and industries. Effectively, it can be used to describe almost any financial transaction that involves information technology, which covers a huge range of day-to-day applications.
Starting with the obvious, fintech includes the banking app you use to check your balance, transfer money between accounts, check on your mortgage and various other tasks you would previously have needed to either go into a branch, go to an ATM or wait for a posted statement for. Traditional banks have been somewhat forced to embrace the digital age for reasons we will go into in the next paragraph, but the end result is that it is now much easier to conduct your business with them.
The push that led to this particular application of fintech came from another - neobanks and challenger banks. These are effectively digital-only equivalents of the traditional banks, offering functionally the same services entirely through their apps and websites. In fact, as their products are often better tailored to their customers through the use of artificial intelligence (AI), the result is that the services are sometimes significantly better than their traditional competitors. Incidentally, the development of that AI counts as fintech, too.
But this is still the obvious stuff - it’s still just banking through an app. What else is there? Well, take a look at the range of other financial transactions you can conduct from your computer or phone. You can:
- Trade stocks, shares and traditional or cryptocurrencies
- Buy products or services from online and physical stores (with or without a credit card)
- Track your spending and find ways to reduce your costs
- Simplify dividing up the cost of a shared purchase between friends and track its payment
- Crowdfund your projects
- Raise and donate funds for charity
- Earn a monthly salary from the donations of strangers
- Make claims on your medical insurance
- Transfer money to overseas accounts
The list goes on.
2. Fintech has helped those in extreme poverty
Some of the most popular and talked-about apps to have come out of fintech solve what can only be described as ‘first-world problems’. The ability to split a bill evenly and make sure everyone pays their shot does not require an great skill in mathematics and yet there are several competitors in this market, including Splitwise, SettleUp, Tab, Square Cash and others. Yes, there are at least four apps in the market to solve a problem you could easily handle with a calculator and the ability to pick friends who aren’t freeloaders. And that’s before we go into things like Patreon and Kickstarter, which are explicitly designed for people with money to spare.
Imagine how the world of fintech looks to those on the poverty line, let alone those well under it. If you’re living paycheque to paycheque, having to decide between eating or running the air conditioning during the height of summer, some of the developments and achievements that fall into the category of fintech as we listed above may seem petty at best.
However, the reality is that fintech has lifted millions out of extreme poverty by giving them access to financial services they would ordinarily have been denied. In the western world alone, a banking app saves essential time and money spent getting to the bank to deal with your essential financial affairs. That’s useful enough for places where there’s generally a choice of banks in every town centre. However, what if you live in a mostly rural country where the nearest bank might be several days of potentially dangerous travel away?
Places like India and Kenya - indeed, several African nations - have seen their unbanked population decrease enormously through the development of neobanks. The cost of buying and running a smartphone is a small enough one to pay and small local offices providing basic services ensure that customers can get access to financial services in even extremely remote communities. Thanks to M-Pesa, for example, 200,000 Kenyan households have been lifted out of poverty since 2007 - that’s 2 per cent of the country’s population!
3. There is more work behind the scenes than you realise
A problem the world of finance has been facing since finance was invented is one of security. For traditional banks, an early hurdle was convincing people that it was safer to keep their money with them than under a loose floorboard or in whatever other creative hiding place people managed to come up with. The same problem has afflicted fintech-based firms trying to convince customers that using their services is as safe as using a bank, if not safer. They haven’t been helped by highly conservative news media intent on finding any potential weakness they can, no matter how contrived.
Of course, there is an element of justification to the caution people show around financial systems. Every new development has brought new opportunities for those determined to make their money from dishonest means. With banks came bank robbers. The release of payment and debit cards was followed by card skimmers and even an increase in muggings at ATMs. Fintech is no different, and various online scams revolve around weaknesses in online security, the ‘tech support scam’ being an especially common one. And scams are the easiest threats to deflect compared to the constant hacking attempts that led to 2020 being the worst year for cyberattacks yet.
With both public concerns and credible threats to contend with, a surprising amount of work and effort is put into making fintech as safe and secure is possible - arguably far more than has been put into customer-facing systems and services. Apart from anything else, constantly keeping up with surprisingly innovative criminals requires constant innovation in security. The fact that many laws and regulations require extremely tight security is virtually a secondary consideration.
The results come in such forms as eKYC, blockchain, AI fraud detection and many others that would take too long to explain in this one article. And the amount of time and money invested in improving cybersecurity is only increasing.
4. Fintech may actually replace traditional finance
As we said in earlier points, many of the current applications of fintech seem like little more than modern conveniences - methods of simplifying something that, while achievable, was always previously annoying, time consuming or unnecessarily complicated. In the extreme cases of unbanked or poverty stricken populations, it’s a means of getting access to financial services, but that’s all, right?
Potentially, no - there’s far more to it than that. In the words of Arvind Sankaran, an expert in innovation and fintech: “We’re witnessing the creative destruction of financial services, rearranging itself around the consumer. Who does this in the most relevant, exciting way using data and digital, wins.”
Sankaran and many others predict that further fintech developments could spell the end of traditional credit ratings, a revolution in how loans work and potentially even spell the end for traditional banks as we know them. There are plenty of other financial services being disrupted, too, from remittance to payments. For this reason, many banks are themselves investing heavily in fintech to do what they can to remain relevant, with some start-ups younger than a decade old partnering with firms that measure their age in centuries.
Take DeeMoney as a perfect example - we have already superseded traditional banks as the easiest and best-value way of sending money overseas, whether that’s for payments or remittance of funds. This was achieved by making the process a case of a few clicks on an app instead of an hour spent in a bank branch, filling in endless forms just to be told that what you’re trying to do isn’t possible for some contrived reason, despite the fact that the folks in a different branch of the same bank said that it is. You can take a look at just how easy it is for yourself by heading to our sign-up page.
5. Fintech is only going to get bigger and more important
If you’re reading this and thinking that you’ll stick with traditional banking, thank you very much, I have some bad news for you. The simple fact is that fintech is not some flash-in-the-pan fad that will disappear in a few years. It’s not like a social media platform that gets a spike in popularity one year and is forgotten about barely a decade later - thinking of you MySpace and Vine, for the first time in years! No, fintech is very definitely here to stay.
How can we say that with such confidence? The spending alone is evidence enough. Investment in fintech has been growing exponentially for a decade. It doubled between 2014 and 2018 alone, with ever more and more valuable deals being done each year. According to Goldman Sachs, the market worth of all FinTech firms was about $4.7 trillion - and that was in 2015. Interest certainly hasn’t waned since then. With approximately 71 per cent of millennials (people born between 1980 and 2000) preferring a trip to the dentist to a trip to the bank, and with them currently having most of the spending power, those financial firms that prioritise the customer’s need an simplify banking as much as possible are going to be the big winnings in the coming years - that means fintech.