FinTech is frequently referred to be the new marriage of financial services and technology. This interconnection, on the other hand, has a lengthy history and has evolved through time.
Its initial manifestation may be traced back to the introduction of transatlantic cable and fed-wire, which allowed a man sipping tea in London to order a financial product from another part of the world over the phone and have it delivered to his door.
This was followed by the introduction of automated teller machines (ATMs), driven by conventional financial institutions, which aided consumers and reduced bank trips.
Due to the Great Financial Crisis of 2008, the present metamorphosis has become more prominent in the media as the Fin-tech Revolution.
The following are some of the variables that led to the present metamorphosis.
Regulatory reforms were implemented after the financial crisis, resulting in increased regulatory capital against loan portfolios and interbank market contraction. The public's perception of conventional financial institutions' growing distrust led to newcomers gaining adoption. Finally, increased Smartphone adoption overcoming infrastructural mismatches.
"Silicon Valley is on its way: There are hundreds of companies working on various alternatives to traditional banking with a lot of brains and money. They are excellent at alleviating pain points, as they can issue loans in minutes that might otherwise take weeks for banks." JP Morgan CEO Jamie Dimon was the first to recognize this.
Why do India and China lead the pack?
Furthermore, recent FinTech advancements have progressed due to the greater need for financial inclusion and economic progress in Africa and emerging Asia. China, India, and other emerging countries never had the opportunity to establish Western-style physical banking infrastructure, making them more receptive to new ideas.
Today, China (69 percent) and India (49 percent) have the most extensive Fintech usage, well above the global adoption rate of 33%, indicating a shift away from the western-dominated financial sector and recognizing global advancements in digital banking.
How pervasive is today's Fintech?
Consider a typical day in your life. You took a picture of your paycheck stub using your smartphone and uploaded it to your bank's mobile app. You used intuit's mint to figure out how much money you had set aside for clothes each month. You and your friend split the bill during dinner using Zelle. Later, you used Google Pay to pay for a drink or two with your phone. When it was time to go home, you took an Uber and delivered it with a saved credit card—or even Cryptocurrency for the ride. If you're an immigrant, you probably used Transferwise to send money home.
Hell! Fintechs even aided Uncle Sam in distributing checks to citizens and providing loans to small enterprises during the pandemic.
Is there a Risk?
Engaging with fintechs, many of which are still entirely unregulated, especially in the world of cryptocurrencies and blockchain, might expose you to unwelcome or unexpected threats.
Many start-ups rely on technology to offer their services or products directly to clients, bypassing banks. The inability of these mobile agents to satisfy big withdrawal requests due to a lack of liquidity poses a significant risk!
These New FinTech businesses often have a poor track record in terms of risk management, liquidity, and profitability, as well as problems recognizing their commitments.
The rapid growth of a company, on the other hand, might lead to risk blind spots.
Consider the following scenario: In three years, almost 18 million people used M-Pesa, and the service accounted for 43 percent of Kenya's GDP, making it too big to fail.
Just ten months after its inception, Yu'e Bao, an Ant Financial Group (Alibaba) money market fund, owned over US$ 90 billion (the fourth biggest in the world).
These fast scaling-ups and changes in regulatory and compliance regulations not keeping up to them may lead to unintended consequences.
What does the future hold for us?
The underlying technologies that fueled today's Fintech, such as blockchain and open banking, will continue to fuel future innovation.
There has been some discussion about how Fintech may help speed up typically time-consuming red-tape-bound operations. Because they are based on numbers and algorithms rather than human abilities and views, many fintech systems combine features of conventional brokers/advisors with others to assist customers in navigating financially complicated activities without requiring them to contact an actual, live human.
Casual investors no longer need to meet with financial professionals face to face to go over the ins and outs of their portfolios; they can go through their alternatives online or even utilize chatbots to assist them in making selections.
Finally, how Fintech impacts your life is a personal decision determined by how many services you choose to use.