The FinTech Sector and its Challenges
This question can be answered in so many ways. Today, we will look at several aspects of the Fintech sector and hopefully answer this question and understand the challenges faced by it.
First of all, let us take a brief overview of this new emerging concept day by day. The FINTECH sector is an emerging concept that has already started to change the financial sector. Fintech is an abbreviation for Financial Technology, i.e., the use of technology in the financial sector. It emerged along with Information Technology, and over a period of time, it evolved into something new and different from a normal bank or institutions associated with financial services.
What are the Fintech applications being used today?
There is a wide range of FINTECH apps that people are using. Some of these apps bring an entirely new set of functions in the financial scenario. Some others use technology to replace traditional banking processes and products. A few examples would be:-
- App-based lending programs driven by data and algorithms provide customers with options for loans based on their credit history and not just a personal interview.
- Free international money transfers like TrueMove H’s HelloPay makes sending funds across borders as easy as sharing an iMessage using Apple Pay
- Blockchain enables peer-to-peer lending like BTCJam or Lending Club that helps people with little or no credit history borrow money from private individuals
- Robo-advising Fintech applications like Betterment or Wealthfront help people to invest their own money by automatically creating and managing a diversified portfolio of low-cost ETFs based on the customers risk tolerance without any human, financial advisor
Apart from these apps, several others have already got success or are still in the pipeline. So, let us take a brief look at different aspects of the Fintech sector.
What is FinTech? – The concept explained: It uses various kinds of technologies to deliver financial service at lower cost and with greater efficiency and speed. It has become such a buzzword that there are hardly any new financial start-ups without it. Fintech can be defined as an emerging sector in the financial industry to provide innovative products and services for retail and commercial banking, payments, lending, insurance, money market, etc.
How FinTech will change the way we experience Banking
It is important to understand that Banking and Fintech will not co-exist in the future. We would likely see more technological advancements, which would make physical banking redundant. Customers would expect new services to be available on their mobile phones, and they want it personalized with greater flexibility. Today’s fast-paced world requires real-time information at a click of a button. Customers do not want to run around from one bank to another, and they would expect a seamless experience across all banks and financial institutions. This means that instead of doing banking, you will be experiencing it!
We are already witnessing some technical or non-banking innovations in the banking sector. These technological advancements, i.e., Fintech innovations, are making it possible to deliver banking services like loans, payments, lending, money market, etc., on a 24×7 real-time basis using digital channels. It is also expected that Fintech would provide better customer service than physical or brick-and-mortar banks. Banks can also expect a reduction in the cost of operations and an increase in efficiency with the help of Fintech innovations.
For instance, if you look at the payment sector, then apart from normal cash, we currently have cards and online or mobile banking for payments. With the advancement in technology, a person may just need to think about making a payment, and the same can be done by using brain waves, as shown by Japanese firm Hitachi.
Apple has also filed a patent for its version of the same. This technology is called Brain-Computer Interface (BCI) and uses tiny implants in the brain connected to a magnetic coil worn like a headband and can read electrical activity in the wearer’s brain. It could be possible that this could be used for payments as well. It is quite logical to believe that in the future, we might be using technologies like “Pay With Your Brain Waves” or “Think To Pay” or call it by whatever name, but the underlying technology would still be BCI.
In another example of Fintech, if you are an American citizen and have a PayPal account, you can instantly transfer money to any of your friends in the USA without having a bank account. This makes it very easy for people who do not have a bank account to transfer funds digitally.
Other Challenges faced by FinTech Industry
Security is one of the biggest challenges that all FinTech companies face. As the entire sector is driven by technologies that may be vulnerable to cyber-attacks or hacks, it becomes imperative for FinTech companies to ensure that their systems are not easily hacked. Security has been a nightmare for the Fintech sector, and it is hoped that soon there will be a system that will become unhackable.
Another important challenge that Fintech companies face is funding. It has been observed that funding for the Fintech sector in 2022 will be three times more than in 2016. Hence, it is important to understand the importance of funding and how it can be provided to FinTech companies while ensuring compliance with regulatory requirements.
Another challenge for the Fintech sector is regulation. It has been observed that several legislative issues need to be addressed by regulators around the globe. It is important to ensure that the regulatory bodies’ national and international jurisdiction should be clearly defined to avoid jurisdictional issues between different regulators. There are also challenges related to taxation which need to be addressed by all the stakeholders in this sector for effective growth of the Fintech industry.
Now looking at these challenges, it seems fairly clear that for effective growth of the Fintech sector, it is important to address all these challenges. FinTech companies should be allowed more liberty with the support of regulators to ensure enhanced customer satisfaction. With this background, it is quite possible to conclude that a more secure, reliable, and efficient Fintech industry can act as the engine for the financial growth of any country.
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