Busting myths: Fintech edition
Sashwat Shrestha, Product
Image courtesy: www.freepik.com
Let’s talk about FinTech
Have you ever tried managing your cash simply through your phone, sent money to friends and family using Venmo, CashApp, or any peer-to-peer payment service, transacted using cryptocurrencies, or noticed your banks moving towards digitization? If yes, you have been a part of the FinTech movement.
FinTech is merely an abbreviation of the words “Finance” and “Technology”. It represents an evolution of an industry that continues to infuse new technology with traditional finances to create novel financial solutions for individuals and businesses. FinTech strives for financial accessibility while ensuring security and affordability with the help of artificial intelligence and blockchain technology amongst others.
The market value for FinTech currently stands at $112.5 billion and is expected to grow to $332.5 billion by 2028 (Vantage Market Research, 2022). These statistics confirm the demand for companies like Robinhood, SoFi, and Refinitiv contributing to collecting a grand total of $210 billion of investments that were poured into the industry last year (KPMG, 2022).
While it’s the talk of the town, facts can be easily susceptible to hearsay, rumors, and myths. The industry has a general misconception about a bubble waiting to burst, it involves too much risk- it only caters to youth; a sector that aims to eradicate banks, or that its benefits are only applicable to large, saturated markets.
This blog will try to dismiss some of the myths in hopes of encouraging more people to learn about FinTech, apply it to their businesses and empower people toward financial freedom.
FinTech is a bubble waiting to burst
FinTech has been around for a while, maybe you just hadn’t noticed. The introduction of credit cards in the late 1950s is acknowledged as one of the first FinTech products in the market. Since then, companies like PayPal have capitalized on the market as one of the first few companies to operate primarily through the internet.
Fast forward to 2022 and people conduct transactions to and from the furthest corners of the world with just a few clicks. The credit goes to the believers; the ones who have empowered this movement, and its future applications and possessed the vision to innovate.
FinTech has been substantial, not just to grow businesses but also to save lives. Especially during a world pandemic, the industry has played an imperative role in keeping families and businesses alive. No wonder the industry is expected to grow at a compound annual growth rate of ~19-20% for the next 6 years. The skeptics can hypothesize all they want but the industry has come unscathed and is here to stay.
FinTech involves too much risk
There is no denying that FinTech, like all industries, comes with a certain amount of risk. This statement is irrefutable, however, what we can “refute” is the belief that it carries too much risk, much more than other industries.
Yes, FinTech is susceptible to fraud, cyber-attacks, and service failures but with challenges come opportunities. There are companies within the industry such as SIFT, that are trying to protect the industry with game “saving” risk mitigation technologies. They use AI and machine learning to analyze fraudulent patterns and relay timely warnings with ongoing transactions without any human intervention.
There are Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) committees constantly revising compliance and regulatory requirements to mitigate financial abuse. There are technologies such as White-Box Cryptography and Code Obfuscation that make it nearly impossible for hackers to steal secret keys or dissemble code into valuable information. If FinTech was as averse to risk as people like to believe, we would not be witnessing a 64% rise in the global adoption of the industry. (EY Global FinTech Adoption Index 2019).
FinTech only caters to youth
If you’re reading this, it’s too late (Drake, 2015). Maybe only the millennials and Gen Z are going to understand this Drake reference and maybe it is “too late” for the boomers to catch on the Drake hype train, however, the statement above does not ring true for FinTech.
It is true that ~65% of most frequent users are indeed millennials and Gen Z, mainly because they grew up with it, the technology is naturally intuitive for them. However, Millennials and Gen Z primarily use the technology for highly personalized mobile banking and peer-to-peer payments but the industry is not only limited to that.
While the Millennials and Gen Z dominate the industry in terms of usage, Boomers without a doubt have the biggest spending power. There are FinTech products like insurances, trading, retirement planning, and asset management that boomers can make the most out of. BBC reports “Deloitte has projected that people over 60 will be generating 51% of urban consumption growth in developed countries, or $4.4 trillion, in the period through to 2030.”
To summarize, FinTech offers products and services to all age groups including boomers, who are also the fastest growing demographic within the industry. (Fortune, 2021)
Only one can survive- FinTech or Banks
There is an ongoing scheme portrayed by the media that the suits of banks are fighting against the sweatpants of FinTech for financial dominance. Whereas the truth isn’t nearly as spicy as they would like you to believe.
Banks have not been an admired institution in the eye of the public for a while now; especially when they’ve been bailed out several times in the past. The aftermath of financial disasters saw a rise in FinTech startups that entered the industry to “disrupt” and save people from the banks. At least this is the story the media has been brewing.
There is no denying that the emergence of FinTech companies will take a small share of the giant pie the banks have enjoyed. However, the small footprints of innovation that the industry brings to the table can effectively help banks grow. Essentially, FinTech products and services have emerged to cater to the niche; areas where banks don’t offer solutions. If the banks identify a niche that has potential, they can provide opportunities to the mass and expand their offerings.
Banks can also adopt cutting-edge technologies the FinTech industry is developing such as AI lead security tech or online notarization to improve the overall experience of banking.
FinTech is only for large markets
Many believe that FinTech only benefits big businesses operating in large markets located in Silicon Valley, London, Hong Kong, or New York. However, the significance of the industry in emerging markets is overlooked.
In the past, developing countries were labeled as a “no entry zone” for FinTech companies considering risk, lack of accessibility, little spending capacity, and weak infrastructure. That’s not the case anymore. The industry has innovated its way into creating less risky, more affordable, and easily accessible products and services that emerging markets can use and thrive in.
EMs consist of ~86% of the world population but produce less than half of that in economic output. Why? We can pinpoint that to social and cultural issues but a big factor is a lack of opportunities and access. There are a plethora of unmet demands the EMs still crave and are steadily addressing.
Countries like India and China are flourishing in e-commerce whereas China has surpassed the west in FinTech adoption. African countries like Nigeria, Zimbabwe and Kenya are breaking through in peer-to-peer payments, remittance, and mobile payments doubling the population of FinTech unicorn companies. 50% of Africa’s $2bn funding pot went towards FinTech startups. In South America, Brazil is taking the industry by storm where Banco do Brasil saw 80% of transactions being carried out through mobile phones.
This is just the beginning. There are plenty of other nations following the same trajectory in hopes of digitizing their lives and economy.
Empower with Machnet Inc.
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If you’re still doubtful and have questions or concerns, Machnet is here to help. Please get in touch with us at firstname.lastname@example.org so we can provide you with qualified consultancy in building an international payments application.