Over the last couple of years, there has been a boom in technology where new and innovative ideas have been developed to help us deal with the many complexities of our lives. Finances have always been a tricky subject for many people. That is why financial institutions such as banks make huge profits and major turnovers.
The reality is that the world will always need money; however, smarter, cleaner innovations will push the financial sector into a new age of technology and transparency. In a nutshell, FinTech means financial technologies. These are digital software and platforms created to safely and efficiently deliver financial services to clients. They are creative and innovative tools that have been designed to make life better both for the end users and also for companies and industries that will benefit from it.
Over the last five years, the FinTech sector has exploded to a point where it boasts of growing by a 45 percent annual growth margin. According to CB Insights, the sector got a whopping $13.7 billion in funding last year alone.
Banks and any financial institutions have employed a business model that has not only worked out for them but has also made them highly profitable over the years. FinTech, on the other hand, aims to disrupt the way business is done in an effort to bring more financial inclusion to the table.
Innovators in this sector continue to consistently work hard and realize new business models that provide financial services in a more efficient, accountable and speedy nature. Thanks to FinTech innovations, access to financial products and services has never been easier as it is today especially in the untapped market that is rural places without the infrastructure of modern economies.
As the technology behind FinTech continues to grow and be refined, the global financial sector is changing because of it. These are some of the ways FinTech is changing the global finance segment.
One of the biggest and most profitable sectors of the financial industry is the lending sector. Most financial institutions have used the existing models to create new ones that better fit their business models and reach their profit targets.
The role of the bank has always been to act as an intermediary between the client with extra savings and the one that needs a loan to manage the transaction and the risk at hand. FinTech is changing this business model with the advent of Peer-to-Peer (P2P) lending which in a nutshell seeks to remove the middleman entirely from the equation to connect both sides directly aiming at reducing the cost of borrowing. This type of lending has become so popular over the last few years that institutional funds are now coming into play.
Another major role played by banks is to facilitate the transfer of funds between parties. Banks have been rumored to make at least $4 billion annually just from fees obtained during funds transfers. FinTechs are working towards filling this space and providing better terms when it comes to transferring funds between users.
Most notable developments are in the areas of local and international payments. Several companies such as Paypal, TransferWise, and Stripe are working every day to make transfers and paying merchants much easier.
The innovation of services such as M-Pesa the most popular mobile banking solution to making domestic payments has changed how people save and how people make payments. As a customer you can also determine which service will be best for you by using services like WireCompare.
3. Improving the online shopping experience
As the retail business continues to suffer and shrink by the day, online stores are expanding and getting new clients by the day. As such, customers want to feel safe while buying goods online. This is exactly why customers are seeking shopping experiences that are not only quick but are also safe.
As people are more educated and informed when it comes to online fraud, people are looking for ways where they can buy and sell their goods without the possibility of being scammed or losing money. Since the online marketplace is only growing as more people get online, companies such as Stripe and PayPal are making it easier for people to make purchases without fear. Services such as Flint and WePay accommodate payments from the retail sector.
4. Facilitating speedy payments
For a business to thrive, its invoices should be paid on time and in a prescribed way. One of the things that make businesses go under is the accumulation of bad debt. When invoices are not paid on time, the business suffers because the business owner must find other means of paying his creditors.
What this translates to is a business that isn’t profitable and one that might go under at any time. With the aim of reducing such incidences, companies such as Invoice Ninja have stepped into the gap in an effort to aid small businesses collect payments so that their monthly revenues can go up. By being able to invoice your creditors and having them pay on time, you not only increase your business operations efficiency, but also become more profitable.
They say necessity is the mother of innovation. With the many gaps that are existing in our current financial policies and institutions, many FinTech companies are continuing to do great things in their space. It is important for companies and individuals to embrace these technologies as they are the future.
This post is part of our contributor series. The views expressed are the author's own and not necessarily shared by TNW.