Within the past years Blockchain and FinTech has largely disrupted the financial industry, and today there are more than 12 thousand FinTech startups worldwide!
But what exactly is FinTech? What’s all the fuss about?
FinTech (Financial technology) is, simply put, new technological solutions seeking to improve the delivery and use of financial services; this is often done by automating processes. FinTech in itself is not a new invention; it emerged 70 years ago, first with the introduction of credit cards and later with electronic stock trading and e-commerce.
Since then, FinTech has expanded to many different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management. FinTech companies seek to get as close to their clients as possible by investing largely in machine learning, behavioral analytics and UX design. By doing this, they help customers navigating simply through an otherwise complex financial jungle.
Financial Technology and the banking industry – friends or enemies?
Within the last 50-year period, the banking industry has benefited greatly from Financial Technologies creating more refined tools for risk management, trade processing, treasury management and data analysis.
In spite of this institutional improvement, banks are still criticized for their lack of transparency, and for being everything else but customer-friendly. FinTech companies exploit this by offering simple, transparent solutions that fits perfectly into the customer’s everyday life. Today, half of banking customers globally are now using FinTech firms, and 88% of legacy banking organizations fear losing revenue to financial technology companies in areas such as payments, money transfers, and personal loans.
So, FinTech can be thought of in two broad categories, consumer-facing and institutional. Whereas the institutional category of Financial Technology has supported the banks for many years, the consumer-facing FinTech services, such as robo-advisors for wealth and retirement planning and online lending platforms are quickly gaining customers and competing with banks.
Will FinTech companies replace banks in the future?
While new financial technologies have emerged at a rapid pace, we have only seen a tiny part of what is possible and likely to happen in the next few years. We can expect fundamental changes in the way that financial sector works. However, when it comes to regulatory and data protection, the established banks are way ahead of FinTech companies, making it challenging for FinTech to truly overtake the market.
But after all, it all comes down to the customers. And if half of banking customers globally are now using FinTech firms, what will it look like 10 years ahead?