What exactly is fintech and how has this shaped the financial services that we use?
Financial innovation through which disruptive technologies are applied in financial services for better user experience.
Fintech comprises different aspects and below are some examples.
This is similar to your human financial advisors but it uses computer algorithms to build and manage your investment’s portfolio based on your risk and appetite. It is cheaper and is a good starting platform for those who want to invest passively but do not know how to. Some notable companies include: Stashaway, Syfe, Endowus, Kristal.AI.
Read more about Robo Advisors in another article written here.
Regtech companies use technologies such as cloud computing, big data and machine learning for regulatory monitoring, reporting, and compliance.
E.g. Helping businesses track online transactions in real-time to spot any anomalies in digital payment
End-to-end data protection to prevent data breaches
Toolsets that provides business roles with easy access to compliance knowledge
Some companies to look out for in Singapore: Dathena, Cynopsis, Apiax, Clausematch, Netguardians.
Fintech has made moving money faster, simpler and even more secured. For remittances, fintech companies have allowed for the ability to send money across borders at a fraction of the cost with no hidden fees or charges which makes it more transparent.
Some companies include: Transferwise, Nium
Blockchain technology is like the backbone behind this whole fintech revolution, it is a decentralized and distributed ledger (eeee so cheem). So basically, a distributed ledger is a database that can be accessed by multiple users across different regions and geographics while decentralized means that there is no central party that stores a large amount of data. Right now, you may be wondering so what's so good about it? Enhanced security and trust. Digital payment has been made easy and secured with blockchain. Instead of going through different banks just to transfer money to your friends who are based overseas, it can be done more efficiently and at a lower cost with blockchain.
Some companies include: Circle, Ripple
Makes buying insurance easier. Uses technology to find the right mix of policies for one's coverage. Availability of on-demand insurance for micro-events such as buying car insurance for the 1h rental car borrowed.
Fintech companies in their various aspects have attempted to address the pain points that customers face with incumbent firms. They have brought about greater transparency, more seamless, faster and more secured transactions. So what other ways have they disrupted the financial services and why are they seen as competitors to incumbent firms?
Payments: With phones becoming indispensable, it has brought about the advent of digital wallets where people make digital payments for almost everything ranging from food, food deliveries, online shopping and ride-hailing. Besides just digital wallets, there is also the rise in digital currencies in which causes money to bypass the financial institutions straight to the users.
P2P lending: allowing individuals to get loans from others without the intervention from financial institutions. Ability to cater to small-medium enterprises who normally are unable to secure loan application.
Even though fintech has changed the structure and the consumption of financial services, it has not obtained a dominant position in the market. Given banks' reputation, many consumers still face inertia when switching over and this has resulted in the slow adoption rate and the lack of a consumer base for fintech companies.
Instead of fintech competing with banks and banks competing with fintech, it will be of a partnership, a collaboration between the 2. Fintech can benefit from banks' extensive customer to reach out to more consumers. Besides, they can tap onto the banks' extensive consumer data such as spending patterns and wealth data which will allow them to create an insightful customer-centric solution.
Meanwhile, banks can benefit from how fintech companies use a customer-centric approach to enhance user experience. They can work with fintech to come up with solutions that improve their operations, making it more cost-effective and efficient.
TechFin is not just swapping the word fintech, it is termed when large technological companies expand their businesses into the financial industry. Some examples are Google and Apple introducing their own digital wallet Google Pay and Apple Pay respectively. Similarly, we can categorize Alipay and Wechat Pay as TechFin companies too.
With TechFin companies' large consumer base (consumer behaviours) coupled with their technological capabilities, it will provide them with the ability to respond to the users faster and with more accuracy. Next, TechFin companies have evolved card security by scraping away card details on the face of credit cards ( those who have Grabpay and Dash will know what I am talking about).
However, even though consumers might seem to be embracing and adopting products of TechFin, many are still reluctant to entrust their salaried accounts with technological companies and would prefer banks that have advantages in governance, risk management and regulatory compliance.
In conclusion, with the competition, consumers and users will gain and benefit ultimately. Financial services are constantly improved to be more efficient and more user friendly. We get more competitive rates, better security and most importantly, all at a lower cost.
Disclaimer: This is just my take on fintech and TechFin. There are definitely more than just this, feel free to share and add comments down below so we all can read more about those as well :)
3 more comments
Interesting article on TechFin, although I think the part about blockchain being more efficient and cost-effective is somewhat debatable. The technology requires a lot of computational power which translates to higher electricity costs and longer waiting times.