The term has been thrown around the startup scene, and then some in news articles or business ventures but do we really understand what it means?
If you’ve ever paid for something with your phone, transferred money to your loved ones cross-country on your phone, or checked your bank statement online, then you’re already part of a multi-billion dollar industry that is shaking up the world of brick and mortar tellers and ATMs.
It’s called Fintech and It’s changing economies around the world.
What is Fintech?
Fintech is short for Financial Technology. Seems simple, right?
Well, the term Fintech includes a huge range of products, technologies, and business models that are changing the financial services industry. It refers to just about everything from cashless payments, crowdfunding platforms, robo advisers, virtual currencies, money lending and borrowing, investments, and money transfers.
So every time you donate to someone’s GoFundMe campaign, that’s Fintech; or, if you transfer money to someone using GCash, that’s also Fintech; and that’s just the beginning.
Right now, hundreds and thousands of companies are trying to enter the banking and financing industries by changing the way we pay and borrow money; and investors are buying it. Global investment in the Fintech sector has added up to 112 billion dollars in 2018 alone. Where startups focusing on payment and lending technologies received a majority of those funds.
It’s not just startups that are getting into the Fintech game, far from it. Some of the world’s biggest companies from Apple to Alibaba are going big on it too such as Apple pay or Alipay. Locally, we saw Unionbank shift its focus on a more internet-first approach for their services from opening a bank account all the way to being able to access investment portals and money lending options.
One reason for all of these investments in the Fintech industry is that consumers are adapting rapidly to wanting to be able to know their bank statements as they need it, pay bills from literally anywhere with an internet connection, and order food from the comforts of their own home. All the while being able to focus on what matters most for their time. Research has shown that, globally, 75% of people across major economies report using or utilizing Fintech services in 2019 alone.
China, India, Russia, and South Africa are leading the way with more than 80% of their consumers are using services like ,money transfers, financial planning, borrowing, and insurance. Among developed countries, the United Kingdom, the Netherlands, and Ireland have lead in the adoption of traditional financial services to Fintech reflecting, in part, the development of open banking in Europe.
Financial Technology has easily and rapidly filled the void for people around the world who don’t have access to traditional banking services.
In fact it estimated that nearly 2B people worldwide are without bank accounts. Many in the Philippines included.
Now, thanks to Fintech, all you need is your phone to open a bank account, take out a loan or insurance, or even send and receive money from loved ones abroad or in neighboring cities.
Take Kenya which pioneered a mobile banking system called M-PESA. Kenya access their M-PESA accounts directly on their mobile phones to transfer money, Pay bills, or take out loans. The best part about their program is that the service is retro-fit to be able to work on feature phones or on 2G only capable phones.
Today, an estimated 96 percent of households in Kenya use MPesa.And one study found it has helped with roughly 2% of Kenyan households from extreme poverty.
The rise of Fintech has enabled traditional lenders, insurers, and asset managers to embrace new digital technologies. For example, wealth managers in the United States as well as in the European Union have to compete with robo-advisers with automated financial services.
I mean talk about the rise of the machines taking over the jobs of humans. Only a few years ago they were trying to replace burger flippers. Compare that to 2021!
Thanks to high tech algorithms that come in the form of artificial intelligence, these services are available 24/7 and can be more affordable than traditional asset managers. Imagine being able to access your investments with an accompanying manager that can scan the best options for you faster than any human can.
Like any growing industry, Fintech isn’t without risks. And some regulators have struggled to keep up with the fast pace of innovation. A quick and easy example is the struggle of Banko Sentral ng Pilipinas to enable the entry of crypto currency in the country as a means of trading as well as utilize it as a transaction method.
Consider also the perils of peer to peer lending platforms where individuals borrow and lend without going through a bank. Compared to traditional banks, these services might not be required to set aside as much money in case customers default on their loans. Taking in and sending out loans, debts, and payments as well are a big risk factor in the country with loan sharks not even needing to go out of their houses to transact with their clients. Which also doubles down on the aspects of safety and security of what might come if left unchecked.
Most recently, like most any year, data privacy has been and will continue to be a major concern as more financial services go digital, Take into account the information you provide to non-regulated Fintech platforms as well as cyber attacks that can just as easily withdraw everything within the platform in a click of a button or take your personal and bank information so they may go directly to the source to absorb everything the bank is worth.
The challenges facing Financial Technology are likely to grow as more business go digital but for many of the companies and consumers specially in the time of the pandemic and lockdowns across the globe, Fintech is more than a buzz word. It’s a big business opportunity.
Ngugi, Benjamin & Pelowski, Matthew & Ogembo, Javier. (2010). M-Pesa: A Case Study of the Critical Early Adopters’ Role in the Rapid Adoption of Mobile Money Banking in Kenya. EJISDC. 43. 1-16. 10.1002/j.1681-4835.2010.tb00307.x.