BY TANUJ KUMAR
Fintech is an amalgamation of finance and the technology which is used to support or enable banking and financial services all across the globe. In laymen or simplest terms, it could be understood by the equation mentioned below.
FINTECH=Finance + Technology.
Let’s rewind and think about the time in the 1990s when barely 1% of the population had mobile phones and technological advancement had just started to originate. Now after 30 years, the scenario has changed completely. Technological advancement takes place at the speed of light. Innovation has taken charge in every aspect of one’s life. Rapid industrialization has given a boom to many other sectors. Technology has impacted the banking and finance sector too. With its impact on finance, it has created a new industry i.e., Fintech. It has a huge range of products, technologies, and business models that are reforming the financial services industry. It includes cashless payments, crowdfunding platforms, Robo advisors, virtual currencies i.e., cryptocurrency.
Transformation in banking and financial sector-
Earlier there was no way or technology via transferring of funds digitally can take place. People used to follow the traditional method of paying out funds. But now Fintech has transformed and revolutionized the payment-making process. It has completely changed the way we pay and borrow money today. Transfer of funds electronically within a few seconds that too domestically and globally has only been possible due to fintech. It has opened new ways of lending and borrowing money for its users as they can do the same very easily and conveniently now. Transparency and security are also well-taken care of by this industry which helps them to build a good amount of trust amongst its users. They ensure real-time fund transfer globally very smoothly and effectively without any need for documentation work and legal bindings. This adds more to the enhancement in its user experience.
Funding received–
Fintech firms raised a record funding of $22.8 billion across 614 deals in the 1st quarter of 2021 i.e., more than double the previous quarter, according to a report from CB Insights, a data platform. A large no. of investors has invested in this industry mainly due to two reasons,
The consumer base is increasing at a high pace as they are adapting to Fintech Fast.
The annual return on investment is also high as this is the most lucrative and profitable sector.
The other reasons why Fintech has become a good investment avenue for investors are-
Adoption of making cashless economies–
Many countries in the world are adapting to cashless economies i.e., making payments via their mobile phones. Because of Fintech one can easily make an account on transaction-making apps and make the payments for goods and services they purchase. This has replaced the use of traditional wallets and people no longer have to think about the security of their wallets from being theft.
Fintech stores and analyses the data effectively–
They have a huge data related to consumers’ spending habits which they use very strategically to fill in the loopholes which exist in the current traditional financial services. This helps them to cater to their customers in a better way. They also assist them by providing valuable information on how they should spend, save and invest their money to gain higher returns.
Liberty to involve in profitable parts–
Fintech firms can pick and choose the parts in which they want themselves to be involved i.e., profitable parts which is a consumer-facing part. They don’t have any restrictions and protocols, unlike traditional banks. They can offer what is demanding and fetches them high user interaction and returns. Their main motto is to fill in those gaps that banks are not taking care of and affects the comfort, convenience, and experience of its users. They tend to provide the best possible solutions to these problems. And hence gets more importance and user engagement.
Fintech includes AI (Artificial intelligence), peer-to-peer lending, Big Data, Blockchain, crowdfunding, digital payments, and robot advisors. Robot advisors have automated financial planning services. People no longer have to look out for any financial expert or consultant to get their desired insights on finances. They also offer asset management solutions with more efficiency and effectiveness as AI ensures total accuracy in real-time. They ensure errorless and dependent data to their customers. AI helps in fixing payment security-related issues as they identify suspicious activity and predict risk levels in real-time, to detect the fraud as it happens. They also help investors in making better investment decisions and people’s wealth portfolios.
Blockchain–
It is a distributed ledger technology that permits information to be stored in the digital blocks globally on thousands of servers. It works when two companies who are in business together and use cryptocurrency as payment, their agreement forms a “Block” in the chain collectively put together to form a blockchain. It is a decentralized database that allows everyone to access information and changing it is near to impossible. This technology was originally described in 1991 by a group of researchers. Adapted by Satoshi Nakamoto in 2009 to create a digital cryptocurrency Bitcoin. It is also constantly evolving and is used for maintaining medical records, E- Notary, Collecting taxes. It has eliminated the middlemen i.e., Banks. Earlier when we used to make payments across international borders it used to circulate via banks deducting conversion fees in-between. But now one can directly send currency in the form of bitcoin with a very minimum charge.
Future of Fintech–
As we know this industry has been hugely funded by many investors which include big players like Amazon and Alibaba. It shows a good progressive sign for the future as well. Due to its problem-solving capability and providing unique solutions It has gained major traction from its customers. It also caters to the huge latent demand of digital transactions taking place all across the globe. All in all, it will turn out to be a boon for the banking and financial industry in the future.
ABOUT THE AUTHOR
Tanuj is a student of B.com prog. 2nd year in kmc, DU. He has a keen interest in finance, Investment banking, VC & Private Equity. He believes in turning ideas into reality via perfect execution & loves to spend his idle time playing cricket & listening to music.
Disclaimer: The views expressed in this article are the author’s own and do not necessarily reflect the views of the organization.
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