Fintech has the potential to redesign the financial system.
The industry has spawned a mini-dictionary of buzzwords that fintech seems to be a trend that has come out of nowhere. People are still asking: what is fintech?
Stick around, and we shall explain. In this article you will learn:
- What Is Fintech
- The Fintech Companies That Are Making an Impact In 2018
- Fintech and The Blockchain Technology
- Why Is Blockchain Technology The Future of Fintech?
In truth, fintech has been around almost as long as the modern financial services industry.
But from the aftermath of the 2008 economic meltdown, a new breed of innovators emerged with a raw compulsion to prevent a repeat of further disasters.
Fintech has infiltrated the banking industry from the outside in.
And now the banks recognise the impact these disruptive technologies can have on the broader financial sector, fintechs have been invited into the belly of the beast and adopted as brethren.
Technology has the such an overpowering reach everybody will have the opportunity to open a bank account. Even some of the remotest inhabited patches on the planet can get an internet connection.
As far as the banks are concerned, where there’s a connection, there’s a customer.
What Is Fintech?
Fintech covers a broad range of brands and services spanning across multiple sectors. You will already be familiar with some; PayPal, visa cards, payment gateways, online banking, google wallet etc.
Less obvious examples are stock purchases, investment management solutions, big data, mobile technologies and tailored analytics.
Essentially, fintech is anywhere innovative technologies are used for the design and delivery of financial services or helping businesses manage the financial side of their business.
The clue is the word indeed: an abbreviation of financial technology.
But while traditional banks and insurers have been using technology for decades, fintech start-ups are developing targeted solutions that will have a positive impact on society. Many of these companies employee computer science and IT specialists rather than non-financial specialists.
The goal for fintech start-ups is to create practical systems that enable the financial sector to deliver a service while attempting to protect consumers from bank scams.
The evolution of fintech has switched from back-end processes and data management platforms to end-to-end solutions. In just a few short years, fintech has reshaped the financial service industry and its subsectors.
As a result, fintech will facilitate the growth of online shopping by installing innovative trading platforms, collecting data and improving transaction processes.
Experts also expect to see a shift in the balance of power from banks to firms that own customer experience. And by integrating artificial intelligence, financial products will be tailor-made for consumers.
The long-term vision for fintechs will probably not be realised for several years or more.
But 2018 promises to be the year when the changes that are planned in the financial sector become more evident in the mainstream.
Let’s take a closer look at the fintech innovations we should expect to surface this year.
Fintech Companies to Watch
We have selected the companies below for their innovations. The groundbreaking technologies these firms are making are vital areas in the fintech space and could make an impact this year.
Stripe is a payment gateway that offers reasonable processing costs and minimal hassle. In 2014, the company showed it’s forward-thinking ambitions by becoming the first company to add Bitcoin as an option to its payment service.
Although the firm removed Bitcoin support in January this year – because BTC is too slow and impractical as an online payment option – they have expressed an interest in Lightning which supports Litecoin and Ethereum.
We expect to see these options appear later this year.
Plynk is a money-messaging app which enables users to send money in an instant.
The best use of the app to date is for friends to share restaurant bills when one diner has paid the restaurant via credit card.
The app is free to use and works by creating a virtual Mastercard. The next natural step for Plynck is to expand payments to small businesses so that users can make small payments for meals, cab fares and even a pint, straight from their mobile.
The name almost says it all, but for clarification, Revolut is an app-based banking alternative that enables users to make overseas transactions in multiple currencies without being charged a spend fee.
In other words, Revolut is a fintech that presents direct competition to banks with a damning declaration that it is possible to trade in different currencies without the need to charge extortionate processing fees.
As online shopping grows and international trading accelerates, we expect Revolut to become a household name and 2018 should be the year the brand hits the mainstream.
The bank challenger only launched in 2015 but has already acquired more than 1 million customers. The Revolut app also handles cryptocurrencies.
Read more in our Revolut Review.
Another technology that protects consumers is an online payment service that only completes transactions once goods or services have been provided.
Considered as one of Europe’s most valuable fintech firms, Klarna eliminates the risk for buyers and sellers. Because the brand name will become synonymous with trust, we expect to see the widescale adoption of Klarna among eCommerce companies.
Fintech and Blockchain Technology
One of the most talked about fintech innovations is, of course, blockchain technology.
It’s no secret that digital currencies are generating fortunes and given we live in the cyber-age, the next step in consumer evolution is to develop cashless societies and move everything into the digital space.
Including the exchange of money.
We have already seen India used as the testing ground for cashless societies. And this despite only 2% of money exchanges made through electronic transactions before the paper fiats were refused in 2016.
At least another 20 nations are gearing up to integrate cashless payment options into the mainstream over the next few years.
With fiat currencies in danger of collapse which would leave every nation riddled with debt, digital currencies provide a solution for recovery.
And the blockchain is a platform that would allow us to scrap the current financial system and develop a new one.
At the moment there are over 5000 ICO’s (initial coin offerings) developing digital coins and blockchains that can be used for trade.
Developing multiple blockchains will mean that consumers and financial institutions will have more choice to make quicker and safer payments online.
Theoretically, the technology can be used for a broad sector of industries, and once regulations are cemented, there will be an acceleration of businesses accepting cryptocurrencies as a form of payment.
A blockchain is a distributed ledger that is monitored by other users in the network.
Blockchains create a decentralised network meaning that no one single entity (bank, corporation or government) has a monopoly of the system.
In principle, the introduction of a public ledger is designed to eliminate corruption, criminal activity, and manipulation of the financial markets that is prevalent in the financial sector.
That, at least, is the plan of the fintech start-ups that are developing systems applications that will stabilise money markets and protect consumers from fraud, scams and hidden payments.
Why Is Blockchain the Future of Fintech?
Fintech blockchain is still in its infancy, but the disruptive technology is growing up quickly.
Though companies are still maturing the proliferation of technological innovations through a broad range of industry sectors will see the future emerge pretty quickly.
A prime example of how digital payments is set to become mainstream was discussed at the ComplianceEase compliance summit in 2017. The talks revolved around blockchain and digital mortgages.
Up to now, mortgage lenders have refused to offer home buyers a cryptocurrency mortgage.
However, the blockchain will allow money lenders to assess the credentials and reliability of borrowers and make informed decisions about whether to authorise loans.
This may seem unfair to home seekers, but let’s not forget that it is the irresponsible lending and buying of loans that typically cause economic meltdowns in the first place. And financial stability is one of the issues blockchain is designed to facilitate.
With smart contracts like those available on the Ethereum blockchain in place, money lenders will be able to identify which customers will be credible borrowers and which put the economy at risk.
While there will be restrictions and limitations that prevent people from pursuing dreams, keeping the economy stable essentially makes markets safer and the cost of living affordable for everyone.
For instance, widespread adoption of blockchain will make entry-barriers and transaction fees lower.
We have already seen examples of this with the switch to cloud-computing which allowed penniless start-ups to rent hardware and software. For every challenge, companies come up with solutions.
As result eCommerce stations like Amazon, iTunes and Google Play can be more competitive and offer goods and services at the better value of money prices.
In other words, small businesses do not need backing from venture capitalists to start a company.
The proliferation of mobile wallets and wearable technologies will also make it easier for consumers to purchase items using QR codes and mobile coupons. This will inevitably make shopping faster and more convenient.
In the not-too-distant future, near-field communication tags will enable shoppers to pay for goods as you remove them from the shelf. All you will have to do is scan a barcode with your mobile phone, watch or another wearable that is synced with your digital wallet. And the transaction will be logged in the blockchain and backed by a smart contract.
Therefore, if the goods turn out to be faulty or you are not satisfied with the item, you can return it to the vendor and get your money back.
As we touched on above, Fintechs are launching innovations that will force brands to be more transparent, accountable and competitive.
Blockchain protocols facilitate this by recording precise data in the digital space that cannot be corrupted.
The more participants a network has, the safer and more competitive it becomes because data from new blocks are checked against previous blocks. Any discrepancies are flagged up to other nodes within a network.
Auditing companies do not have to wait for government regulations to be put in place before they start implementing solutions that ensure digital contracts are fulfilled.
In theory, there is more onus on companies to provide a quality service. The incentive is to deliver on their promise because failing to do so will tarnish their brand reputation.
Fraud protection will continue to be hot topics and is an issue developer do not seem to have found a solution to.
The blockchain is designed to prevent fraud. However, at the moment the technology is being used to assist fraud.
With the rise in cybercrime, online security is a pressing matter for financial service providers.
While banks are lagging behind, fintechs are pushing innovations that can be integrated into existing eCommerce systems to be used alongside blockchain.
Online security is presently the responsibility of consumers. And even then, the only fence is the password.
Blockchain incorporates password strings and complex mathematical equations which creates a defensive fortress that cannot be breached.
As fintech makes its mark, we will gradually see fewer traditional finance tools and services replaced by digital solutions.
Business will move towards lease-based models and customers will be required to subscribe to brands they trust. Funding and customer verification will all be conducted on digital platforms and nations will become cashless.
So if you have been wondering what fintech is, now you have the answer:
Fintech is the imminent future.
Read more about the most prominent Fintech Trends.