In current business climates, financial technology (FinTech) is one area of growth that offers tremendous promise. Over the last few years, the emergence of FinTech has greatly impacted how business is done, how we transact as customers, and how we think about the future of finance in society.
What is fintech?
The term "financial technology (Fintech)" is used to describe new technologies engaged in improving and automating the delivery and use of financial services. The definition may be straightforward, but the details of how digital technologies are used and how they affect consumers when they are used for social and economic developments still require more clarity.
What is the social impact of FinTech?
At the World Bank, it's been clear for some time that increasing the use of digital financial services contributes to economic growth and poverty reduction. Countries with deeper, more developed financial systems will achieve higher economic growth and faster reductions in poverty and income equality.
Given the impact of the COVID-19 crisis, it quickly became clear that digital financial services play a vital role in peoples' and governments' access to secure, low-cost and contactless financial tools. Achieving basic financial services, such as transaction accounts, credit, savings products, and medical coverage, have already aided people living in developing countries to increase their incomes and become more resilient.
How can FinTech help the UK?
Digital financial services were necessary to prevent financial systems from failing and to provide people with a secure way to make financial transactions during the pandemic. This occurred during a period of distancing from society, falling demand, reduction of input supply, and tightening credit conditions.
Governments have used FinTech extensively in the last 18 months to reach people with cash transfers and other forms of financial assistance on top of providing emergency liquidity for businesses. It also allowed people to transfer funds, both globally and in the UK, and to pay bills from the convenience of their homes.
FinTech has enormous potential, and what has already been achieved is just the beginning. In many different ways, the pandemic sums up the benefits of digital financial services and the way they can play a crucial role in achieving the Sustainable Development Goals set by the United Nations.
Accelerating this development using FinTech in the UK will require:
- Legal and regulatory frameworks to allow people to benefit from digital financial services
- Development of agent networks to meet individuals' local cash-in and cash-out needs, as well as investment in infrastructure necessary to deploy digital financial services, especially in remote areas
- Access to government data platforms
- Biometric identification systems, including digital identification
- Open application programming interfaces for developers, which permit the collaboration of external applications
- Access to government data platforms
As well as these enablers for digital financial services, managing risks are equally important. Users of digital financial services may be exposed to unauthorized disclosures, misuse of their personal data, and discrimination as a result of these data trails. People who use financial services will therefore need financial literacy programs to avoid becoming overindebted or facing predatory lending.
In order to help more countries expand access to digital financial services responsibly, the World Bank will continue to work with both the public and private sectors. Short-term benefits will include speeding up the resolution of the pandemic crisis, providing economic support, and supporting the return of economic growth. As a long-term initiative, FinTech is hoped to contribute significantly to economic development and ending poverty.
What is the future of FinTech?
Cloud computing, IoT, AI, and blockchain technologies are among the technologies driving change in how consumers interact with retailers and manage their money. FinTech could be considered a disruptor by traditional players in the financial services industry, but those that embrace technology innovation are transforming the industry from the outside in and succeeding where traditional players have failed.
Today, FinTech companies are leading the financial industry and taking a leading role in developing financial products and services aimed at facilitating money management and making it more effective.
Here are a few of the changes expected to shape the FinTech sector in years to come:
The concept of financial inclusion is going to gain greater mileage and practical applicability. The model is important too to ensure that there is an all-around development of the community.
The pandemic affected most parts of society, but the most affected were the people from poor economic backgrounds. In 2020, some great innovations led the way for financial inclusion to help the oppressed and the poor. For example, the Razer Card issued by Razer FinTech was designed to address the banking requirements of the Gen-Z and millennial generation Singapore and Malaysia as part of the Razer Youth Bank.
Borrowing and lending money
There are many more options available for getting access to funds now, including crowdfunding and peer-to-peer lending, which have replaced the traditional method of borrowing money from a bank. Using new, non-traditional methods to share money has allowed both investors and those who are not eligible for a traditional loan to flourish.
Fintech is expected to produce the rise of digital payments as the new face of payments, making cash payments obsolete. Payment apps and systems are now being integrated into the industry to enable instant online payments. As a result, many businesses are now actively hiring web developers to integrate the digital payment system into their businesses.
The future will see a rise in collaborative efforts to ensure a healthy competitive landscape while emphasizing innovation. Banks, insurance companies, and asset management companies are all looking at partnering with FinTech companies so that digitisation becomes easier and faster for them.
The global acceptance of cryptocurrency is also predicted to increase this year. The European Bank, for example, has taken a step towards developing a digital euro. The European Union is planning to develop public opinion in this regard, and we will soon find out how open it is to accepting crypto coins.
Because of how fast things are changing, it is hard for many companies to compete, while also staying within their industries' regulatory frameworks. By utilising big data and machine learning, regtech tools identify outliers that may be indicative of fraudulent behaviour. Real-time threat detection reduces risks, and data breaches are often prevented or reduced when potential threats are identified.
Many FinTech companies so far have focused on the needs of Gen X and millennials. However, some innovators are emerging into the market with products designed to help to protect grandparents and great-grandparents who are vulnerable financially. Eversafe is among the new companies trying to streamline the fragmented process of managing the monthly bills of the senior population.
Where do we go from here?
In the area of FinTech, advances have been made at lightning speed for social and economic change. However, we’re still only scratching the surface of what is possible and likely to happen in the near future.
FinTech is literally changing the way we live and work by making it easier to trade, bank, and exchange money without having to interact with others physically. Nevertheless, the financial sector still faces several challenges, especially in the regulatory and data protection space, to win consumer trust and for FinTech to truly overtake the market.
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