Finance is a complicated industry that is based on age-old mechanisms of money but somehow manages to use more technology than an average business. The advent of financial tech has helped us gain more attention to the workings of this complex structure. However, is finance tech really the future of finance or is it merely a small part of a bigger industry that is becoming more digital by the day?
Is Fintech new?
Financial tech is not new. Though the new generation of apps, technologies, and software are frequently called Fintech, the era of financial technology began way back in the Netscape era. Hundreds of finance centric start-ups have come and gone. Note that many Fintech startups have failed while others ended up being acquired by legacy businesses. The idea of ‘disrupting’ the financial industry was revolutionized by PayPal and we have seen at least a dozen other such services coming to the forefront recently.
It is important to understand that it is difficult to fully ‘disrupt’ the financial industry. It is running on legacy software and a tightly knitted structure that does not allow much space for new entrants. However, this does not mean that there is zero scope for innovation in the sector. It is likely that the upcoming Fintech apps and services will want to support the existing infrastructure and make it stronger and quicker.
What’s the role of tech in finance?
We need to understand that the finance industry does not boast of easy and early adoption of different technologies. Customers usually do not change their financial service providers easily and even the smallest change in one area of finance will mean a complete revamp of the rest of the areas. Hence, Fintech will not want to ‘disrupt’ the idea of financial systems unless the next PayPal comes along.
The customers of financial services providers are becoming more mobile friendly and doing more transactions than ever. They do not believe in physical banks and offices anymore and want to be able to transact at the click of a button. Tech can help companies take their businesses online and enable quick digital transactions for their customers. Mobile wallets, banking apps and other software are designed to give financial services better penetration in the lives of their customers. Customers are asking for the ease and speed of transactions and that is exactly what tech can provide them.
Is that it?
No. Finance tech innovations will be making a welcome change to our old financial systems too. Many fintech startups are trying to bring speed and efficiency back into the financial system. They are working at retail as well as enterprise level to make radical changes to how we receive, send, and store money. These startups are concentrated in fee-based business sectors but the core banking sector is also touched by this revolution. Fintech will likely be going big with big data and analytics and could also use artificial intelligence to make transactions more user-friendly and secure. As new startups keep pouring in this segment, it will be interesting to note the trend developments in this area.