Until the 2010s, fintech was more of an ancillary sector. Financial technologies were used mainly in banks and on stock exchanges as something internal. However, there has been a radical change over the past ten years. Now financial technologies are becoming more accessible to individual clients. Private venture capital and the share of investments directed to fintech have grown tenfold. Fintech has taken its niche and is developing at such a pace that it is already very difficult to distinguish an advertising image from a real service.
All kinds of chatbots, artificial intelligence in the financial sector, blockchain, robotic consultants, and neobanks – all these are fintech products that have appeared and begun to develop actively in the last 5-10 years. There is no doubt today that the banking industry’s future is in using financial technologies. The world’s leading banks are creating venture capital funds and digital incubators, buying promising technology companies in the financial sector. However, there is an important question here – what is the future of the fintech industry as a whole and why fintech is the future? Let’s talk about the future of fintech in more detail.
Any business is a whole chain. Any product must first be produced in a factory. This factory, like the product itself, is necessarily insured. In addition, the factory earns additional income through investment in other products, business expansion, etc. It attracts loans, uses its own capital, which it has received thanks to investments, etc.
All products manufactured by the factory are transported to the point of sale by carriers who have the same chain. Shops sell products and are also interconnected. These value chains have many links – people, balance sheets, software, etc. All this is closely intertwined with the overt and unspoken rules of the market and the specific area in which factories, carriers, and shops operate. And this entire chain for various industries is now being actively digitized.
Digitalization, in one way or another, affects all areas and all links in the chain. For example, in the main offices, communication does not always take place in person; calls (including video calls) and messages by e-mail and instant messengers are used for communication. Automation is applied to the processes of evaluation, adaptation, and customer service. A client does not need to go to the office to solve their problem. A chatbot will help them with this, and if it fails, it will eventually connect the client with the manager. However, since most of the questions are simple and routine, a chatbot can also handle them.
Digitalization has become the reason for the deepening of ties between different industries and, accordingly, the deepening of competition. If earlier credit companies and payment operators overlapped remotely and worked only in their niches, now they can offer a wide range of services and compete with each other directly.
It is very important for fintech companies to work directly with customers. Therefore, they are actively investing in services that open up such opportunities. For example, Softbank has invested several billion dollars in direct-to-consumer fintech services to be able to serve millennial customers. The competition in the fintech industry has become so intense that even loss-making clients are an area that is important to target.
At the same time, competition continues to grow, and financial market leaders have to invest even more money. In particular, JP Morgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), Banco Bilbao Vizcaya Argentaria, and Banco Santander (SAN) have already released new versions of their fintech products, and other banks are also preparing to do so. In their developments, these companies are guided by the creation of digital banks and new-age investment advisors. These technologies have already become the rule, not the exception.
Fintech services strive to combine the functions of the financial sector as much as possible in order to offer customers even more. This situation can be compared to grocery shopping. If a person needs to buy different products, today, they will go not to several different stores but to one supermarket, where they can buy everything they need at once. Fintech works on the same principle, which seeks to offer dozens and even hundreds of functions.
In recent years, financial application programming interfaces have emerged. These tools are based on PSD2 as well as data aggregation sites. Thanks to the emergence of these interfaces, the scope of use of banking and investment data has expanded.
Financial companies can rent out their own licenses, balance sheets, and charters. It is considered by banks as a service. Therefore, many technology companies have launched their own financial products. For example, Tesla. Here you can not only buy a car but also immediately insure it. Greensky offers a financial product where contractors can lend to clients who live in their homes. Affirm puts credit into the e-commerce verification process.
Blockchain technology has become one of the main drivers of fintech development. Its key advantage is decentralization. Blockchain ensures data protection and the stability of the distributed ledger. Millions of developers work with the blockchain, improving services and developing new data standards and new services for users.
The first blockchain-based services immediately demonstrated the huge potential of blockchain for fintech. They have shown functionality in lending, payments, banking, asset management, and more. So far, blockchain-based products are just beginning to evolve, but huge prospects are already visible.
The only serious problem hindering blockchain development is gaps in legislation. Unfortunately, many countries still do not have financial regulation in this area. In most states, financial regulation laws were developed at a time when such technologies could only be dreamed of. However, this problem appears to be temporary and is already being addressed in some countries.
Over the past ten years, fintech has dramatically changed the traditional world of finance. And fintech growth is already unstoppable. The competition in the niche is getting fiercer; fintech companies are offering customers more and more services. Moreover, thanks to fintech, companies that work in other areas can now offer financial services. This makes their business more versatile. Fintech has huge prospects, and the development and resolution of legislative problems with the blockchain will allow us to make another leap forward. Therefore, there is no doubt that fintech has a great future.