What is Fintech?
Fintech is short for financial technology. If you ever paid for something with your phone, transferred money using an app or checked your bank statement online, then you are already a part of the multimillion-dollar industry called Fintech. Fintech is changing the economy in the world.
Fintech includes a huge range of products, technologies, and business models that are changing the financial service industries. It refers to everything from cash-less payments to crowdfunding platforms to robo-advisers to virtual currencies.
Global investment in Fintech sector has added up to nearly one hundred billion dollars since 2010. In 2018 alone Fintech investment surge eighteen percent. Start-ups focusing on payment and lending technologies received the majority of those funds. It’s not just start-ups that getting into Fintech. Some of the world’s biggest companies from Apple to Ali Baba are going big on it too with ALIPAY and Apple Pay. Consumers are also adapting Fintech very fast.
One out of every three people across twenty major economies is using at least two Fintech services. China and India are leading the way with more than half of consumers using services like money transfers, financial planning, borrowing insurance, etc.
Let’s discuss some of the advantages of global Fintech development outsourcing.
Currently, in the world, it is estimated to have more than two billion people who are completely un-banked. These are individuals who have no access to bank accounts, no way to borrow money for college, for whom the only way to save money is to stash it under their mattress. It perpetuates a vicious cycle of poverty. And this is not only a problem with developing countries but also in developed countries as well.
In the US for example, in cities like Miami or Detroit, more the twenty percent of households are completely un-banked. That gap was created between what your banks were offering and what you as a customer came to expect especially from a user experience and convenience perspective. And that gap is what Fintech industry is tackling right now.
Fintech technology has filled this void around the world who don’t have access to traditional banking services. For the first time in modern history, Fintech was able to offer these individuals financial services and already making a positive difference. According to the world bank, over the last five years, seven hundred million people went from being un-banked to being banked. And this is just a beginning. Now with Fintech, all you need is a phone to use banking services.
Improved customer experience:
Fintech provides great value to traditional banking and other financial institutions. At the same time, some of the most game-changing technological innovations have transformed the way we live and have become part of our everyday life. Think about the iPhone, Airbnb, Uber, WhatsApp, or WeChat for example.
They are already becoming a norm in global payments. Customers are now having virtual wallet apps on their phones, using which they can now pay for in-store purchases. Some apps even allow customers to scan the bar code of each product using the QR code technology and they can transfer payments without the need for a human cashier.
Take, for example, Facebook has currently around fifty different regulatory licenses in the US alone. That will allow Facebook users to transfer money via a messenger app. Amazon recently experimented with offering student loans on its platform. Alibaba’s financial arm launch a bunny market fund that has become the third biggest money market fund in the world. We-Chat has become the most common tool to transfer money. It does not only allow you to buy insurance products or invest in funds directly from your smartphone but also book your next doctor appointment, order a taxi, donate to charity. Last Chinese years they processed more than eight billion red envelope transactions.
The good news is, recognizing the change, the banking industry is now also reasonably good at integrating those new technologies in order to better serve customers.
With the right outsourcing technology on board, you can run your business operations much faster and cost-effectively. Because outsourcing technology is a lot cheaper than developing one for your company. Consider all the expenses that you will have to go through in managing a tech team of a development project. Think about the payroll, additional space in the office, office equipment, hardware, as well the administration cost.
Not to mention here the increased cost associated with ever-changing infrastructure and business processes. This is why start-up business prefer outsourcing Fintech technology because it reduces the cost by 40 percent to get a white label software rather than building your own. In fact, it has been reported that 60 percent of the start-up companies outsourcing their financial technologies mainly as a cost-cutting tool.
You can count on money that you can save by using Fintech technologies, but you cannot count on how much more you get in terms of operational efficiency, risk management, flexibility, scalability, customer attractiveness, and many more. These technology firms have more expertise and specialized developer than your internal team because technology is their core business. All these benefits allow you to enable best practices for your business and speed up in the market when using Fintech technologies compared to developing technology in-house.
These technologies also help you quickly scale up and down depending upon the requirements and important milestones. You do not need to hire an employee to try out a new framework that best suits your business need. You can have it by on-demand resources such as UI specialist, designers, etc. that you normally do not need as a full time.
The most trusted financial platform of the future:
It is very common for Fintech companies to outsource their business processes and are becoming the most trusted financial platform of the future. The financial platforms of the future are not going to be your banks but the technology firms. The newer generation is not going to open a bank account with traditional banks but with Facebook or Apple for example.
The reason these tech firms are so successful than traditional banking is that they have daily existing touch points with customers. And to a certain point, they have their trust and confidence. People are more comfortable sharing their financial details with them than they are with traditional banks. If you buy all your daily necessities on Amazon wouldn’t you buy them to buy insurance products?
Think, for example, Facebook, people are comfortable enough to share their photos on Facebook and comfortably use it as well to transfer money to friends and family. These tech firms are now also offering thousands of new and dynamic Fintech products that used to be previously offered by traditional banks only. Fintech has changed the way financial institutions and other companies interact with their customers. It has helped to reduce the cost of transaction for end-user. Fintech has also greatly helped financial industries on their business processes, including lending payments, financial advisory, and investment management to be able to extend their services to the underserved market.
The Fintech revolution is bringing a lot of positive developments. One of the most important ones is financial inclusion. The Fintech industry is continuously working on transforming how financial services are being delivered. And consumers will be some of the biggest beneficiaries. Not only from the user’s experience and convenience perspective but also on access and cost savings. Fintech technology is now offering consumers an alternative platform to loans, that used to be previously available mainly at banks.
Robo-advisory platforms offer consumer asset management solutions. That is not only more transparent in what they charge you but also substantially cheaper. The global Fintech outsourcing market is continuously growing with the increased investment in financial technology firms. Only the block-chain segment of Fintech global investment predicted to reach up to more than 7,000 million US dollar by 2022.
Leading the front-end:
Using Fintech technology, the start-ups now have the ability to pick and choose the parts of banking they want to get involved in. It’s very unlikely that you see Fintech start-up wanting to become a deposit-taking institution. They are very happy to control the front-end, the consumer-facing, obviously the most profitable part and leave the boring back-end to traditional banks. And this will create a new model of banking future.
Where the traditional banks are handling the back-end basically becoming commoditized utility providers to this technology firms and the Fintech start-ups to hold the front-end, the customer experience. It is very important to provide quality customer service and competent tech support in order to vastly improve the customer experience.
Innovating beyond expectations:
Apps are further being developed beyond our expectations. The artificial intelligence is being tested to mimic human conversation to replace those call centers you all probably hate. Others are connecting Fintech to the internet of things in wearable technologies. Embedding banking in our day to day life. In the future, you do not need to worry about your financials. Artificial intelligence is improving beyond human scale by adopting the methods derived from human intelligence aspect.
Imagine your car insurance premium automatically going down because your car knows that you have been driving safely. These embedded technologies will automatically notify your insurer. AI has a tendency to compute the huge amount of customer’s information. Results are then compared to finding what product or services customers want and finding what is right for the customer to achieve maximum satisfaction.
No doubt that Fintech offers solutions that are effective and efficient and benefit both businesses as well as customers. It provides technology to ease up your business operations. Fintech help small or start-up businesses to secure the funding they need in order to survive and prosper, by enabling them to have access to increased and more diverse funding options. However, it does not stop here. It’s just the begging. Due to increase innovation and improved artificial intelligence, there will be less human interaction. Fewer employees would be required to run the business. City bank estimates that over the next ten years thirty percent of bank jobs will disappear.
Some experts put that number as high as fifty. And in order to survive, they need to evolve too. New jobs created in Fintech industry will be very different jobs with very different skills sets than those required for the banking jobs today. These are jobs for creative designers and programmers not for compliance officers. Many of us in the Fintech community are shaping this new ecosystem and ensuring that we can all adapt to this new reality. But that’s not enough we need a fundamental change in mindset. But the most important change is the way we think we can train the next generation of talent.
Also read: Top fintech trends| Mobile banking app development
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About The Author
My name is Stuti Dhruv & I am senior consultant at Aalpha, primarily working on pre sales, consulting with clients on latest technology trends.