The finance industry has mostly been the field of big players for a long time. The reason behind this might be a simple human instinct. If you allow someone to manage your money (or in this case, an entity), you need to trust them. That’s why even though many industries have willingly embraced change and technological disruption to the status-quo, the finance industry has remained mostly stable.
Of course, technological improvements and the move towards more innovative mindsets have affected the finance industry too. But the fundamentals have mostly stayed the same for a long while. Under these circumstances, the oldest and probably the most trusted players have been the banks. They are the most deeply rooted actors in the industry. While people may question their investment decisions and financial strategies, no one will question whether or not their money is safe in a bank. Everyone automatically assumes their money is safe in banks. This is an indicator of the trust that banks have built so far and may explain how they have managed to keep their position as the dominant players in the industry.
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But these circumstances are changing. The technology that could transform the finance industry has already been around for a long time — but the fire needs a fire starter to begin burning. This fire starter has probably been the digitisation of money. Once people got used to the idea of digital money that they cannot hold in their hands but can keep track of over digital platforms, the finance industry became bolder in introducing new ideas to transform the finance industry.
Fintechs are probably the pioneers in this area. They are the new players in the industry and they are brave enough to try new ideas in order to increase their chances of thriving against the old giants, which are the banks. With fair competition and rivalry, a more democratic playground (which in this case is the finance industry) is a natural outcome. So how can fintechs contribute to the democratisation of the finance industry? That’s the question which needs to be answered to better understand the influence of fintechs over the industry.
Fintechs are More Innovative
To survive in a legacy industry which has long maintained the status quo, fintech companies have to be the innovative ones. It doesn’t matter if they have undertaken the role of the innovator because of survival instinct or if that’s in their nature, it remains a fact that fintech companies are more eager to try new ideas and business models.
Fintechs can even be inspired by controversial concepts like cryptocurrencies. The emphasis here is on “inspired”. This is because, in most countries, fintech are subject to regulations that apply to the banks. This means compliance is an issue and concern for them, however, they are not afraid to try new concepts while treading lightly on the line between innovation and compliance.
Even the most innovative form of using digital money was implemented by none other than a fintech company. Of course, this is PayPal, who are one of the biggest players today.
Fintechs Are Increasing the Finance Industry’s Efficiency
Banks have many bureaucratic processes which go back to the pre-digitisation era. Obviously, they have their reasons to implement them in the first place but sometimes starting from scratch is the best way to not be beholden to the past. That’s an advantage for fintechs since they have no memories or traditions of bureaucracy going back a few hundred years. They were born in the digital age and solving problems with technology is the only solution they know.
Fintechs are more prone to taking advantage of technology, including mobile technologies. This gives them an edge in terms of penetration. Instead of opening up a branch and hiring experienced employees to run it, they focus on developing secure financial technology that’s accessible even from a mobile device.
From the clients’ perspective, fintechs gives them a quick, convenient and easy way to conduct various financial processes without visiting a branch. By taking advantage of auxiliary mobile technologies, fintech companies can make these processes even faster and easier. Payments or money transfers via QR codes or NFC technology is not a thing of the future — it’s our reality.
Fintechs Are More Effective
Fintechs rely heavily on technology, especially new technology like digital automation, artificial intelligence and machine learning. They also focus heavily on data. Incorporating such technologies contributes to fewer errors and provides a more efficient service in shorter timespans. In the end, these all translate into higher customer satisfaction and service quality, and a better customer experience.
Fintechs Are Safe
Today, we trust technology with everything we have. Considering that almost 90% of money worldwide is digital, it’s safe to assume that our attitude towards money is no different. Technology safeguards and keeps our money. And it is what fintechs depend on for their businesses to thrive.
Fintechs are also subject to regulations like GDPR but thanks to automation and machine learning technologies, they can still offer personalised and financial advisory services within the confines of regulations.
The European Union also included fintechs into the Second Payments Directive (PSD2) and all around the world, new regulations are being designed to consider fintechs as resident actors of the finance industry. Which means that although fintechs are bold, innovative progressive, they are not out of control
Conclusion
It’s a fact that fintechs are pushing the boundaries of the finance industry while encouraging dominant players in the industry to become more progressive and innovative in order to compete. Thanks to their data-driven, fast, secure and transparent qualities, fintechs are sure to transform the finance industry and bring considerable competition to the industry, which has been long dominated by banks.
Increased competition brings added value to the customer and more options for them to choose from, which results in a more democratic environment for all.