Digital technologies are pushing into every corner of the global economy and breaking down national borders. So, it’s no surprise that technology has invaded the financial industries. Although FinTech may be a buzzword, it’s also a fundamental shift in the way that financial industries work, and the way that they interact with consumers.
Financial Technology Steps Up To The Front
While traditional finance has employed technology for decades to support back-end operations and manage accounts, easier access to data via smartphones and Internet applications has produced disruptive new services.
Fintech companies take advantage of APIs, web hooks, and other connecting formats to inspect user account data, which would be difficult to fake. The ability of disinterested third-party agents to share data build a history of customer financial activity over time gives inquiring services, such as lenders, a statistical picture of likely individual financial habits.
The Emerging Capabilities Of FinTech
Banks now connect directly to customers through online banking and mobile apps. Accounting apps aggregate data and financial services startups have created new products that are only possible with the benefit of the insights from data analysis. For example, peer-to-peer lending services such as Prosper and Lending Club can analyze borrower data on connected FinTech platforms to make credit decisions. Such P2P services rely on Big Data analytics to estimate the risk of each loan candidate against population behavior patterns.
Big Data in FinTech facilitates financial services for underserved communities in developing countries. One such startup, Tala, provides microloans to small business owners in emerging markets such as Kenya. Tala’s automated process compares as many as 10,000 data points against data about past outcomes to lend cash through local smartphone-based payment services.
New Payment Methods Will Change The Course Of Retail
New contactless payment systems make payments easier for smartphone users, and the number of transactions is going up rapidly. The spread of suitably equipped mobile devices has changed consumer habits and led to the merging of digital and brick-and-mortar retail. This blurring of lines enables shoppers to visit showrooms and then make purchases online.
The one technology that could change this trend is Virtual Reality that can become popular as an alternative to showrooms. In this case, it will cause a further negative impact on brick-and-mortar retail businesses and the commercial real estate assets that support them. Companies that have a strong digital presence stand to prevail as those more dependent on physical world business models will struggle to transform or just disappear.
FinTech Innovation Means Huge Change
In response to the growth of FinTech, companies should be alert to diminishing barriers to entry, and emerging substitute products and services. The industries that will experience the most immediate impact of expanding FinTech influence include those most closely associated with the following trends:
- Increasing use of online banking services
- Changes to the bases and locations of retail transactions
- Emerging innovative payment platforms
- New global markets available to lenders (e.g. Ghana)
- Growing demand for improvements in smartphone technology
- Increasing commercial real estate retail premises investment risk
The growth of FinTech means that banking, lending, retailers, commercial real estate, mobile device manufacturers and networks, are on the hot seat for continued change and disruption in the near term. In the longer-term perspective, this uncertainty is only likely to increase as further FinTech innovation opportunities arrive on the market.