Primary Reasons Behind the Booming Fintech Industry
The rise and evolution of fintech have been met with a warm welcome across the globe for fintech’s extensively high-value propositions. Fintech has been doing rounds for many years now, but the rapid developments in fintech have become apparent only in the last few years. Technological developments have always been viewed as lucrative settlements in all industries. The lucrative factor exploded with the convergence of the financial and technology sectors, resulting in uncountable opportunities.
This article highlights some of the most influential factors that have contributed to the strengthening and expansion of the fintech industry that has robustly disrupted conventional banking and financial practices.
Digitalization of Financial Services
Fintech is the confluence of finance and technology, where technology supplements financial activities. The digitalization of financial services proved beneficial on multiple fronts. Many possibilities like better control of monetary decisions, faster and more efficient processes, better storage facilities, quick data processing, and uncountable advantages have become evident with financial digitalization. The technological development of financial services took place rapidly, as multiple services or processes could now get managed through a single portal. Such robustness incentivized more technological transformation. The wave of fintech was not restricted to national boundaries, as technology allowed faster, safer, and more efficient cross-border transactions, giving rise to even more opportunities for digital financial services.
Capital Investments
The rate of venture capital investments is record-breaking high year on year in the fintech industry. With investors pouring in from all corners of the world, companies and organizations, especially, small and medium businesses, have had the opportunity to take the leap of faith and get onboard the ship to innovation. Access to capital has been facilitated by technology, bringing in more inclusivity, especially for women, minorities, and also the unbanked.
Crowdfunding and Peer-to-Peer lending have played a tremendous role in setting the course for more successful fintech organizations. In 2020, companies managed to raise almost $480 billion through P2P alone. P2P has proven beneficial, especially for people with bad credit history, making it a more likable option when compared to bank loans. Financing for small and medium enterprises through fintech has become much simpler, further leading to the explosion of fintechs.
Regional advantages
As the financial sector is sensitive to all activities, regulatory standards and compliances have always been its critical segment. With the changing dynamics of fintech, the regulations associated with fintech firms in one region cannot entirely be the same for firms in other areas. Such regional differences in standard regulations and compliances have prompted the rise of fintech hubs, where there are similar regulations across a limited area, making the entry of firms located outside that location more difficult.
The fintech hub in the UK is the leading example of this. The regulations across the European Union are similar across the entire region, which has evoked the emergence of countless fintech organizations, some of which are now world leaders in the industry, like Revolut.
Avant Garde Technology
A key reason for the robust expansion of fintech is the employment of advanced technologies like artificial intelligence, machine learning, blockchain technologies, etc. Implementation of such advanced technologies has powered the system immensely, ensuring that the pathways established in the past few years, would take the global economy and its systems forward. Innovative technology that facilitates traditional functions and supplements additional services, like data management and analysis, faster processing, etc., has become the new normal for the digital world.
Focus on Customer Needs and Experience
One of the chief reasons for the growth of fintech opportunities is the focus on enhancing a better and more efficient customer experience. There has been a paradigm shift stemming from end-users, instead of service providers, because of the rise in fintech. In the past, the financial services and products offered by financial institutions and banks depended more on the providers than the customers. In today’s world, the focus has shifted to the end-user, changing the course of the ideologies and concepts surrounding financial services. Faster processes, better control in the hands of customers, lesser ambiguity, quicker loans, etc., are all part of this transformation that has originated from the consumer’s front.
The Pandemic
Lastly, although fintech has been rapidly growing its prominence globally for many years now, it was only during the pandemic that its strength and glory became apparent because of the sudden need for alternative options for the masses. Governments worldwide turned to technologically backed startups providing financial services to ensure the continued running of their economies. Contactless payments, online banking, international remittances, virtual cards, and other fintech augmentations took over the ground because conventional methods needed to be scrapped.
Final Words
Technology’s resilience has been probed time and again by subjecting it to stricter environments. We have witnessed its success in all industries, and its confluence with the financial world has been no different. Fintech has indeed emerged as a winning industry. As more people join hands with fintech, it leaves little room for any doubts about its mass success in the future years. Our future is already deeply integrated with fintech’s benefits, and we shall see the heights it would reach, with time.
