Access to financing has become a matter of seconds and has been on a demand basis, all thanks to the evolution and innovations in technology in the finance sector such as mobile and cloud computing over the recent years. This has been a widely-accepted financing method by most customers as it provides an easier way to manage funds and businesses online.
Most traditional finance institutions in turn have made enormous investments in fintech to keep up with the competition posed by startup businesses to offer several finance services and products at a faster and more efficient rate. This quest of customer retention and acquisition has resulted in a general increase in technical innovations. This increasing trend in innovation has resulted in a hype in fintech in the finance sector.
The trend in fintech has been procrastinated to keep increasing in subsequent years, here is why:
• A large number of clients are turning to fintech systems. Acting like venture capitalist, most clients are beginning to invest in fintech with the hope of finding solutions to social problems like high transfer rates incurred when transferring funds from one person to another and when making payment. An example of the social problems solved by fintech is Peer-to-peer lending which has made possible money lending at very cheap rates.
• Eliminating the third party. The hype in fintech is also due to its potential to eliminate third parties such as central banks. Elimination of the third party has given costumers a sense of security due to a loss in customer trust towards central banks considering the 2008 financial crisis in America. There’s so many companies doing interesting things, whether it’s related to invoice discounting technology, accounts receivable financing, bitcoin, insurance, personal finance, and much more.
• New technology. The introduction of new technologies like machine learning artificial intelligence and data-driven marketing has made users to believe in its promise to considerably improve on their saving and spending habits and business management techniques by systematically analyzing data on their finance decisions and by doing so revealing habits to hidden even to themselves.
• Security One factor that has led to the hype in fintech and is anticipated to maintain an uptrend is the fact that it is secure and transparent. Its large digital leger is highly traceable by security agencies and has reduced the tendency of fraud. Its digital ledger audit trail has also eliminated the ability of a third party to alter transaction rules. In as much as fintech has improved the ability of quick financing for clients, this has cause a growing concern amongst regulators on how to force more innovation in the industry and at the same time protecting the interest of all stake holders.
Many regulators have been seeking smart regulation techniques a “not too much not too little” kind of approach. Most regulators have been watching developments keenly giving enough room for players to keep performing their duties, but at the same time regulators also want to be actively involved in the process and not only responding to it.
Fintech has been causing changes in existing architecture and creating new deployment and implementation challenges. This has been raising concerns like which issues or problems are we solve first and how can they be solved without affecting other businesses. Now financial executives must figure out how to incorporate the new technologies effectively taking into consideration their short and long term impacts to existing systems and processes.