When most people hear the term “fintech,” they think of cutting-edge new ideas like blockchain or algorithmic trading. However, in reality, fintech has a much broader scope and includes a wide variety of more traditional-looking finance functions that use new technology to streamline them. These include, but are not limited to: everyday banking, insurance and back-office risk management functions.
Fintech, short for financial technology, is the application of modern technologies to finance and banking. It combines the financial industry’s core competencies with digital tools and data analytics to create more efficient, user-friendly solutions for consumers and businesses.
The first wave of fintech began with innovation in the payments space – moving money from one account to another. This included the introduction of credit cards, online payment services and automated clearing houses. In addition, new monetary tools were developed in this period that would revolutionize the financial system, such as ATMs and global telex networks (similar to the fax machines used by many of us today).
These early developments set the stage for what is now considered to be the second era of fintech. This era began in the 1990s with the first moves towards digital banking, including the launch of PayPal and the introduction of mobile apps for banking and investments. More significantly, this era saw the emergence of big data analytics, which is now a significant factor in fintech. By analyzing large amounts of data, fintech companies can make more informed lending and investment decisions, helping reduce risks for both consumers and institutions.
Since the 2010s, innovation in fintech has exploded. Startups have received billions in venture funding to develop new financial products, and many of them have become unicorns (privately valued companies worth more than $1bn). Existing financial firms have also jumped on the fintech bandwagon, either by snatching up startups or by building out their own platforms.
Fintech has made life easier for consumers by allowing them to complete traditionally complex financial transactions with the swipe of a phone or click of a button. This has helped expand access to finance for many underserved populations, while lowering the cost of borrowing and improving financial inclusion.
The next wave of fintech will build upon this foundation by enabling more efficient and effective regulatory and governance systems. This will be achieved through the use of modern legal frameworks, development of robust monetary and financial infrastructure, and encouraging international cooperation and collaboration between regulators. In this way, the third era of fintech will allow it to deliver on its promise of creating a more inclusive and efficient financial world for all. By 2028, McKinsey predicts that fintech will have tripled the growth of the overall banking industry. This growth will be driven by emerging markets. However, it will also be supported by an increasingly favorable global monetary policy environment and the emergence of new, innovative business models for global finance. It’s a promising future for the sector!https://greyjournal.net/hustle/work-tech/navigating-the-new-challenges-for-fintech-startups-in-a-changing-economic-landscape/