“What Ze Tech?”

Over 92% of German citizens have never heard of the term “Fintech”, according to a survey from explorare. Probably, a result of not having the full exposure and legacy of traditional banking institutions.

However, the question here is, whether this inductive example above is just a phenomenon in Germany, or whether this lack of awareness appears deductively on a global scale. As this game-changing sector aims to facilitate the way how financial services are made in both private and corporate settings, it is paramount to concern oneself with the topic.

The Fintech Investment, Boom!

Although Fintech is a relatively young sector in the digital economy, it is quickly becoming influential in the banking and payments spheres. So much so that global investment in the Fintech industry increased significantly – by 64% between 2017 and Q2 of 2018 – growing the sector to an overall value of $26 billion (CB Insights, 2018).

Since 2013, over $85 billion has been invested in almost 2,500 Fintech start-ups (CB Insights, 2018). Investors know the sector is lucrative and a wise return on investment as Fintech businesses continue grow.

What Are The Benefits of Fintech?

As more and more Fintechs gain global awareness, it is paramount that both individuals and businesses understand how the industry can benefit them. Below we highlight these benefits and provide our reasons why Fintechs are gaining more popularity over traditional financial service providers:

#1 - Fintechs are flexible

Traditional banks and PSPs have difficulties in quickly responding to evolving client needs because of inflexible legacy systems, decision processes, and risk-averse budgeting. In contrast with traditional banking, Fintechs are more flexible for a couple of reasons:

Start-Up: The start-up nature of Fintechs contributes towards being more flexible. As these businesses typically are smaller and younger organisations, this avoids being encumbered with outdated systems and results in leaner structures.

APIs: Fintechs often use API (Application Program Interface) – based systems: this enables them to collaborate with other technology providers in a quicker and more scalable way. APIs allow the collaborating partner to access the relevant code for efficient and secure integrations. It’s more or less a ‘plug and play’ principle. This allows Fintechs to give their customers a lot of modular financial service options including banking, multi-currency management, cross-border payments, investing, borrowing and savings. These modular solutions can be tailored to the exact needs of clients, making Fintechs more personalised and flexible in their product offerings.

#2 - Fintechs are transparent

Fintechs allow their customers to manage financial services in a transparent way through:

Pricing. Customers are made fully aware of costs, with none of the hidden fees associated with traditional banking institutions. Additionally, Fintechs often provide pay-as-you-go pricing or allow for services to be purchased “à la carte”, so customers only pay for what they use.

Collaboration. Fintechs are not striving for unilateral disruption of the market – in fact they value collaboration. Fintechs are bringing different platforms together to create a free market ecosystem that ultimately helps consumers save money. This boost in collaboration goes both ways. Traditional financial service providers are seeking Fintech partners as well, meaning everyone can win.

#3 - Fintechs are breaking down borders

The Fintech world has no borders. They are international or aim to break down global barriers, to facilitate global financial services using leading technologies. Imagine making cross-border payments from Asia to Europe in minutes by using a mobile phone on your morning commute in New York – this isn’t a scene from a sci-fi movie, it’s real life. Fintechs are creating borderless financial services that enable real-time data transfers around the globe.

In addition to creating a seamless experience for international transactions, Fintechs have brought banking services to areas of the world that are not served by the traditional banking ecosystem. Emerging markets that were previously unable to participate in the global economy are now getting access to bank accounts and financial services that have the potential to completely change their way of life. By serving the under-served, Fintechs are creating new possibilities and boosting the global economy for the better. 

#4 - Challenge brings innovation – Fintechs are the challenger

Fintechs are taking advantage of cutting-edge technologies as a starting point for innovation. In particular, open-access platforms enable developers to create their own apps and overturn the status quo. By providing continuous innovation and improving the simplicity, transparency, and automation of transfers, Fintechs are raising the bar by defining new standards for payments and banking.

By not being encumbered by legacy processes and systems, they are able to quickly develop solutions that compete directly with traditional financial service providers, driving up the quality of products available on the market and benefitting consumers. This technology revolution that we have seen in other sectors like retail is now taking on the highly regulated space of financial services. In the end, the customer is the one who benefits the most with a new benchmark of facilitated banking and payment solutions.