Fintech – What really lies behind the hype?
Fintech seems to be everywhere these days - but how much do we really know about the industry? In our latest Executive Horizons survey, 65% of respondents gave their knowledge of financial technology a score of only 3 out of 5. So how is Fintech transforming finance? What are its benefits, and what are the key challenges facing sector leaders?
What is Fintech ?
Fintech is the umbrella term that encompasses all technology in the financial services sector, from businesses to consumers. If you’ve ever paid a friend back on Venmo or received a payment via PayPal, you are a user of Fintech. In fact, anything from payments to lending, crowdfunding, online banking and Blockchain is considered Fintech. For respondents in our Executive Horizons survey, online banking and peer-to-peer lending are the most useful Fintech services. Fintech services can take on a number of forms - regulatory technology (Regtech), insurance technology (Insurtech), APIs and smart contracts.
Benefits of Fintech
The rise of Fintech hasn’t always been viewed positively - financial services firms once saw Fintech companies as competitors. Over time, however, finance giants began to invest in and partner with Fintech companies as they started to recognize the benefits.
One key benefit is that Fintech can help to reduce costs dramatically. By automating processes that would otherwise be manual, it can improve operating efficiency. One example of Fintech cutting costs is the rise of 'Regtech', or regulatory technology. Banks can save billions of dollars per year by adopting Regtech solutions, which draw upon data to standardize regulatory processes and ensure consistency.
Another advantage of Fintech is that it can improve decision-making. Businesses can now rely on artificial intelligence to provide data-driven insights. The more insights, the better companies can form strategies to reach their clients effectively. Moreover, Fintech introduces transparency. With Blockchain, for instance, companies can create auditable money trails and more easily identify fraudulent activity, as the information can be recorded in a public ledger.
Most importantly, Fintech can help companies change the way they approach innovation. 87.8% of Executive Horizon respondents considered this to be Fintech's greatest benefit. The growth of Fintech can open new doors and provide companies with a new set of potential customers. The mobile payment app Square, for example, has allowed small businesses to accept debit and credit cards, thereby widening their client base.
Key challenges facing Fintech
Despite its many benefits, Fintech does come with a few key challenges. To begin with, there’s a lack of awareness of what Fintech is and the opportunities that it opens up - 87.8% of Executive Horizon respondents believe this to be the case. As with any new technology, there may be a lack of trust and credibility that needs to be built up over time.
This lack of trust can also become a real issue when it comes to cybersecurity. The more digital data available, the higher the likelihood of a security breach. 85.4% of survey participants viewed this as one of the industry's biggest challenges. Striking examples of security breaches in major companies such as Facebook and Exactis, have significantly increased the number of people seeking to protect their personal data.
Another key challenge facing the Fintech sector is retaining the human touch. No technology can replace empathy and many people are still reluctant to interact with computers and robo-advisors. Leaders in the Fintech sector therefore need to retain a human element to deliver financial confidence, not just convenience.
A bright future
As artificial intelligence continues to advance, data handling and analytics will continue to drive innovation, opening up more opportunities in the financial technology sector. As with most emerging industries, there are challenges ahead, but if the sector’s huge advances are any indicator, the future of Fintech is looking bright.