When Fintech Meets Finance

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Fintech – the potent intersection of the finance and technology industries – has transformed the business landscape forever. After all, technology had already irrevocably transformed our lives, from the way we shop to the way we socialise. It was time that technology revolutionised the way businesses accessed funds.

The Unabated Need for Funds

Finance is the lifeblood of a business. No idea, no matter how brilliant, innovative or potentially lifechanging, can take shape without the ready availability of funds. Yet, raising the money to get going had always been the most challenging aspect of setting up or growing a business. Be it seed capital, working capital or funds for growth, businesses faced severe hurdles in securing sufficient funds in a timely manner and at a reasonable cost.

Being characterised by stringent eligibility criteria, time-consuming approval processes, high interest rates and unyielding terms and conditions, traditional lending solutions are not only misaligned with the needs of a business, but are downright stifling.

Here’s where fintech came to the rescue. Now, technology was not a new companion for the financial services sector. More than 50 years back, technology was deployed to make processes more efficient. However, the financial services industry has traditionally been extremely slow moving and the adoption of technology was limited in its role as a facilitator, rather than changing the way things were done.

Although efficiency within financial institutions increased to some extent, this did practically nothing to address the growing needs of businesses that had to survive an increasingly competitive and global marketplace. The thirst for capital remained unquenched.

Enter Fintech: Extending the Frontiers

Fintech didn’t just make improvements, it redefined, reinvented and transformed how businesses could access funds. A new generation of companies emerged, leveraging cutting-edge technology to offer unique solutions that put the end-user at the forefront and level the playing field for businesses of all sizes.

Fintech made use of powerful algorithms, big data and machine learning to replace traditional practices in the financial sector. For instance, there are fintech firms that help firms raise short-term loans of smaller denominations. The approval process is swift, with algorithms and artificial intelligence assessing a borrower’s creditworthiness.

Today, fintech is no longer a novel idea that savvy executives discuss over coffee, in an attempt to break the ice before a meeting. It has taken the financial services industry by storm and has become all-pervasive. Online payments, e-wallets, peer-to-peer transfers, personal loans, business capital, student loan refinancing, crowdfunding, virtual currency, insurance and investing, fintech is transforming every aspect of the financial services industry.

The Resilience of Fintech

Consider tech giants like Google, Apple and Amazon. Their initial growth - from start-up to establishing a market footprint – was gradual. However, their growth to becoming global, multi-billion-dollar companies has been meteoric. This was made possible by their unwavering focus on innovation. These companies are exceptions, and the larger entities in the financial services industry have a very different story to tell. The larger financial institutions are sluggish to innovate and continue to struggle with inherent complexities. Fintech companies, on the other hand, are highly agile and fast moving. But are they resilient?

What fintech companies must remember is that, despite the many drawbacks, traditional financial institutions have one thing going for them. They have a ready and well-tested ecosystem. So, for any fintech company to survive and continue to succeed, it should focus either on assisting the existing ecosystem or recreating the complete ecosystem. In other words, the fintech entity should either seek to modernise a segment of the traditional ecosystem or will need to recreate the ecosystem with solutions for every stakeholder.

So, let’s say a fintech firm uses passive behavioural biometrics and continuous machine learning to authenticate users and prevent fraud. This solution can be used by traditional financial institutions and ecommerce companies for instant identity verification and multi-layered customer security, without sacrificing user experience. While this firm assists the existing ecosystem, another firm may launch a more disruptive solution, recreating the ecosystem to optimise end-user efficiency and experience. Say, for instance, a platform that connects brokers, business introducers, fund managers and traders. Offering unique products designed specifically for each of the different stakeholders, this platform fuels every element of the entire ecosystem.

If you’re still wondering whether fintech is here to stay, here’s an irrefutable sign of its continued impact and success - growing interest and investments from traditional financial institutions. According to PwC’s Global FinTech Report 2017, around 88% of financial services companies expressed concern of losing revenue to innovators and around 82% expect to increase fintech partnerships over the next three to five years. Venture capitalists are taking notice too. Global VC funding in the first six months of 2017 crossed $8 billion!

While this is great news, the fintech industry is still in its nascent stage. It requires a strong framework of incubators and accelerators to unlock its true growth potential.

Wael Salem is an established thought leader within the Fintech and Investment scenes. CTO at TradeSocio, speaker and serial technology entrepreneur, Wael is passionate about innovation, simplifying complex problems and creating equal opportunities within the tech & investment scene.