What is Fintech?
Fintech or Financial Technology is a term coined to describe technologies used to improve or facilitate the usage of financial services. Fintech is recognized and utilized worldwide, mainly by companies, business owners, and consumers, for managing financial processes and operations. The technology is supported by apps and software using algorithms. Fintech includes sectors of banking, fundraising, education, and crypto-currencies.
Fintech has been there for centuries now; however, in the 21st century, the term has come up in papers. This is because of the technological advancement we are experiencing. The concept of Fintech became prominent due to forex trading, currency trading, cryptocurrency, start-up banks, payment processing, etc. Investors saw that potential in 2019 when they invested a whopping $137.5 billion in Fintech businesses solely. This means that there is a significant chance that the Fintech industry will be the next big thing, if not already.
History of Fintech
A research paper done by Arneris, Barberis & Ross states the evolution of Fintech during all these years. This evolution can be split into a few eras for a better understanding. Explained below are the eras and the evolution of Fintech.
Fintech 1.0 (1886 – 1967)
These were the initial days of Fintech, when the idea was just born. This stage included building the infrastructure which would eventually support the financial services globally. The first transatlantic cable and Fedwire enabled the first EFT (Electronic Fund Transfer System), which included telegraph and Morse code. That was the first step of infrastructure development, which eventually made financial transactions easier.
Fintech 2.0 (1967 – 2008)
The second phase of Fintech or Fintech 2.0 started in 1967 with the installation of the world’s first ATM by Barclays. In 1970, the first digital stock exchange (NASDAQ) establishment and SWIFT took financial technology to the next level. Society For Worldwide Interbank Financial Telecommunication (SWIFT) introduced a communication protocol between financial institutions and consumers for cross-border payments. In 1980, the rise of bank mainframe computers and online banking took equal responsibilities in business fields, giving rise to online businesses. In 1998, Digital banking started its journey with the launch of Paypal. In 2008, the financial crisis brought many projects and plannings of Fintech down, concluding the era.
Fintech 3.0 (2008-Current)
This is considered as the strongest point of Fintech till now. After the fateful financial crisis, Fintech indeed saw a major shift in trust and investment. However, banks and other financial institutions’ lack of confidence gave birth to a new currency concept, aka cryptocurrency or digital currency. In 2009 the conception of blockchain was put into use with the advent of Bitcoin and other cryptocurrencies. This era started with modernizing phones into smartphones, which were then used to access the web and various financial services. The era of start-up started from here with spreading new ideas and conception. Banks began showing support for this new wave of innovation. Banking as a Service platform like SolarisBank and Treezors helped banks and financial institutions to get away from the complicated legacy system and launch neo-banks for a better customer experience.
The Next Generation
With time, we are slowly moving forward to a more progressive financial technology, Fintech 3.5. The next-gen Fintech has much more potential to leave a mark on consumers. It will bring specific changes in consumer behavior and internet accessibility.
The world is slowly recovering from COVID-19, and Fintech is gradually progressing from the 3 to 3.5 era; we will see changes and evolutions from blockchain and open banking more in the future. Machine Learning will evolve the way we interact with fiscal institutions to strengthen the customer relationship by the developments. With that said, innovations and revolutionary ideas aren’t only restricted to the banking sector. Insurance companies are also adopting machine learning to speed up dealing with insurance.
Fintech Trends & Predictions for 2021
According to financial analysts, 2021 might be the year we need for adaptation and transformation. We are expected to see specific ideas being brought to the table and executed. We have reached a stage where organizations and corporations have developed digital strategies and are driving their business towards new directions. Fintech developers will be expected to look out for trends as they design and create new apps and services to provide a great deal of functionality and efficiency. Let’s take a look at what to expect from 2021.
Reversing the pandemic damage
The impact of the pandemic on the financial industry isn’t hidden from us. Because of the pandemic, people are working remotely and maintaining social distancing. The restrictions are lifted; however, the industry is still far from better. It will keep thinking of ways to avoid similar issues by implementing electronic data and paperless processes. Now is the time for manufacturers to rethink their supply chain infrastructure, and financial services organizations must reassess their fintech applications. For this, fintech developers can help implement better document viewing, data capture tools, software, conversion of files, etc. This will change the idea of manual data entry and save time as well. Auto-generate data will also allow people to sign important documents digitally without requiring face to face conversations.
Fintech services and solutions have given customers a new direction to think about financial organizations. Most of the financial industry is now based on customer experience, which is a significant win for millennials. To stay relevant in the market, enterprises need to focus on customers’ experience rather than thinking about the industries’ needs. Keeping the customers in mind, fintech developers need to build solutions that strengthen communication between the customers and the financial sector. Some elements like using lesser manual processes, reducing software dependencies, and automating tasks will continue to be the primary emphasis for fintech developers this year.
Banks and other financial institutions nowadays are partnering up with fintech start-ups, which is a good sign. This approach will help them establish a more stable connection with the new customers and engage with existing clients over new channels. A recent study has found that the pandemic has removed obstacles to digital transformation in the industry, forcing giant firms to invest their resources in their tools and infrastructure. Similarly, for banks wanting to engage with start-ups, they will need to find methods of integrating operations for staying relevant in the business. The integration process will get more comfortable and convenient if they have software that can extract essential data faster, navigate multiple file types, and perform a thorough cleanup. Thus banks and other organizations need great assistance from fintech developers for reaping more benefits.
This is the full report on Fintech’s next generations and what to expect in 2021. The first and foremost task for Fintech is implementing a pandemic-proof strategy before stepping further.