FinTech stands for Financial Technology and is an innovative way of making payments through online and mobile platforms. FinTech is replacing traditional money transfer models that have become outdated and overtaken by technology.
Banking customers are looking for innovative ways to transfer and manage their money. FinTech innovations have moved to incorporate various banking Apps. These are used to send, deposit, and get loans.
Before we go to the opportunities offered by FinTech, let us look at some of the challenges financial operators are facing when they try to incorporate FinTech.
Regulations is probably the biggest shortcoming to implementing FinTech applications. The framework to support FinTech is complex,and in some countries, there is a lack of manpower and infrastructure to support the technology. Regulation has always trailed technological innovation,and the best the players can do is be patient for it to catch on. Regulationis not relegated to local adoption only but needs to incorporate cross-border implications. Each jurisdiction internationally has designed its own set of regulations to support FinTech systems. An understanding of various international laws is necessary before companies go ahead in implementing various FinTech applications.
FinTech handles very sensitive data, and this makes it susceptible to cyber-attacks. As companies come with amazing Apps, they also need to look at security loopholes. Hackers are only the lookout for open unsecured networks to break into. One way you can keep your company on the safe side is to incorporate the BestVPN.com and protect your data from man-in-middle attacks. You also need the best encryption software to keep your data safe.
The core of FinTech technologies is the software, databases and technological innovations used. This is very important, and companies need to learn from the various intellectual property rights available to protect them from theft. Companies will also need to brand their products effectively so that they can have a competitive advantage. Copyright laws will protect the software created from theft. Companies will need to engage their legal teams to take advantage of some of these laws.
What is driving FinTech Adoption?
The shift in consumer behavior
Consumers are changing, and this is causing a change in power from companies to consumers. More people are embracing technology, and this has necessitated corporations to offer competitive products in an effort to stay ahead. Customers are looking for personalized products and are not comfortable with the delay in service delivery. The consumer group driving this adoption in technology is the millennials or Generation X. The group is the target of many financial products because they are starting out in life. They need car loans, credit cards, mortgages and cheaper loans to clear their student loans. The group is excited by the various products offered by FinTech startups. They are less skeptical to the financial risks that these products pose, unlike the older generation.
Widespread use of smartphones
The last decade has seen a proliferation of digital devices across the globe. Gone are the days when financial products were offered in brick and mortar offices. The growth of mobile phones has resulted in the need for more financial based products. Social media platforms have been used to promote most of the financial products. Gen X in various surveys said that they trust what is posted by their friends more than what is advertised by multiple companies in the media. The cost of internet connections has gone done, and this has enabled a large part of the population to interact with their favorite brands online.
The decline in trust in financial markets
There has been an emerging trend in consumer behavior where people are moving their trust from centralized brick and mortar enterprises to distributed connected enterprises. Financial institutions have not helped much to change this perception with the increase of financial crises. Consumers are more likely to place their trust with strangers online.
Lowering in barriers to entry
Designing applications has never been easier in this age and day. The barriers to entry have significantly gone done with cheaper computers and fast internet connections. The introduction of open source programs and the ease to set up a technological company has seen many players enter the FinTech sector. Funding is also shifting to support some of these startups.
Supportive government policies and regulation
While regulation tries to catch up with the technology we have seen an increase in government support for FinTech startups. This has been the case in many developing countries where there has been an explosion in tech startups. Governments have been in the foreground helping these startups by providing an enabling environment for these startups to strive. The has been through education of the general public on the need to embrace new trends to developing and implementing laws that are tech-friendly. FinTech applications have helped reduce the gap between the unbanked and the banked. This has, in turn, led to a reduction in poverty levels in some countries.
What are some of the advantages of FinTech?
Innovative financial solutions help to bring down the costs associated with financial services. A simple banking App saves you the time you would have spent going to the bank to make a transaction. With time FinTech solutions bring down the cost of sending and receiving money.
Solutions to the unbanked
Many people, especially in developing countries, lack bank accounts. This hinders them from accessing financial services. FinTech solutions help bridge this gap. For most of the solutions all that one requires is a smartphone and have the application installed on the phone. Once you are done with verification, you can send and receive money across the various jurisdiction. FinTech solutions have also been used to disburse loans to poor households in developing countries. By doing this, they have contributed immensely to reducing poverty rates.
We are going to see a rise in the number of FinTech companies in the next couple of years. The Gen X group is driving this growth with the widespread adoption of these products. However, regulators need to carefully study the risks posed by some of these FinTech companies to prevent financial loses.