By Brian Munjanja
Financial Technology has been around virtually as long as the financial services industry itself. But since the economic meltdown of 2008, a new breed of disruptors has displaced traditional eCommerce providers with more efficient services.
When you use PayPal, Apple Pay, Google Wallet or simply your credit card to make an online purchase, you the consumer, the eCommerce retailer and the banks behind the money exchange are using FinTech.
And when you go online to find the best mortgage rates for that dream home or to refinance the one you’re in, that’s FinTech.
Financial technology (Fintech) is anywhere technology is applied in financial services or used to help companies manage the financial aspects of their business. This can include new software and applications, processes and business models.
FinTech was once considered more of a back-end, data centre processing platform, but in today’s world, it is known as the basis of end-to-end processing of transactions over the internet, via cloud services.
FinTech is not new; it’s been around as long as financial services have. However, since the financial crisis in 2008, Fintech has evolved to disrupt and reshape commerce, payments, investment, asset management, insurance, clearance, settle of securities and even with money itself with cryptocurrencies, such as Bitcoin.
FinTech’s have altered the direction, shape and pace of change across almost every financial services subsector. Customers’ now want and expect seamless digital onboarding, rapid loan approvals and free person-to-person payments. This is all the innovations that made FinTechs popular!
How FinTech can be disruptive
Disruptive forces that have reshaped the FinTech industry include, but are certainly not limited to:
- The growth of online shopping, which is expanding quickly at the expense of in-person shopping, leading to the dominance of online, cashless solutions for transactions.
- A shifting balance of power that swings from banks and other financial services to those who own the customer experience. Banks are eliminating in-person services and looking to FinTech and large technology companies for other ways to engage customers.
- New trading platforms that are collecting data to create an aggregated market view and using analytics to uncover trends.
- Insurance products, which are becoming more tailored to customers who, in turn, are demanding coverage for specific locations, uses and timeframes. That’s driving insurers to collect and analyse additional data about their clients.
- Artificial intelligence, which now plays a role in differentiating financial services products as it replaces complex human activities.
- Transaction process improvement and middleware, both of which remain expensive. This is pushing traditional financial services firms to consider partnerships with marketplace lenders for FinTech solutions that don’t require a full infrastructure overhaul.
A new world of regulations
After the 2007-2009 financial crisis, regulators turned up the heat on the larger players in the financial services industry, enabling smaller and more agile firms and upstarts to gain traction.
After spending billions and thousands of hours to comply with that new regulatory landscape, the financial services marketplace turned its collective attention to rolling out new products and services. In some cases, banks became the technology developers. But in most cases, the financial services sector found it far simpler to outsource the technology for electronic payments or onboarding of customers rather than build it in-house.
For example, online mortgage servicing platforms saw a surge in adoption by banks for processing client accounts.
Banks deal with more regulatory issues around servicing mortgages, so it’s became costlier to do this with an internal system. This has driven banks more toward outsourced solutions because of the cost and reduced regulatory risk involved in trying to manage their own internal systems.
The explosion of eCommerce has created a healthy ecosystem of start-up tech suppliers for the financial services, retail and other industries. While cautious, banks in particular are quick to adopt technology that can create new revenue streams or bring on efficiencies. So, they sought help integrating new technologies, such as peer-to-peer payments, into their massive legacy infrastructure.
Banks as tech providers
Banks have also become technology providers, competing with the likes of PayPal or Square and sometimes collaborating on rolling out shared platforms to enable services.
FinTech firms, who were disrupting the banking industry are now being disrupted by the banking industry, which is an interesting spin of events. It’s a good example of the disruptors being disrupted.
If you’re a Tech Start-up and require some expert advice or further information on how we can help you, why not give Brian Munjanja a call on 01604 328328 at Broadwing Accountancy? Alternatively, email Brian on firstname.lastname@example.org.