FinTech refers to IT integration within financial services through the Internet to lower barriers both to entry and costs within the industry. This empowers individuals and organisations by improving allocation of human and capital resources from currencies and financing, through payments, fund transfers, operations, risk management and data analytics.
Factors accelerating FinTech
The combination of the high smartphone penetration rate, injection of FinTech investment funding and strong public sector backing for legal regulations supporting FinTech initiatives has facilitated the mass adoption of Internet Finance. This has led to the growth of supporting applications and infrastructure in finance from Peer to Peer (P2P) lending and alternative banking, to crowdfunding and selection of financial and investment products through robo-advisors etc.
The emergence of FinTech can be attributed to the two main factors below:
- A realisation of the value of how much IT can contribute to creating alternatives to many traditional ways in which financial services are provided. Established and new providers of financial services are increasingly looking to differentiate themselves from competitors by innovating new and more efficient ways of offering services and products to improve customer satisfaction and cost efficiency
- A growing appreciation among consumers of just how much recent technological advantages have opened up alternative services offering cheaper, more accessible ways of managing their money, greater access to loans or credit, and better returns on their savings or other assets
In China, Alibaba has built a money market business from nothing to 90 billion of assets within one year of its launch in mid-2013. At one point in 2014, it became the world’s fourth biggest money market fund. It has accelerated the growth even further through Alipay and its strategic partnership with banking institutions in China. Tencent which is well known for WeChat messaging app has also launched China’s first online only bank, WeBank. Xiaomi has also began public beta testing of an online money market fund that lets users earn interest on money saved in Xiaomi’s wallet app.
However, FinTech is not just limited to big corporate companies. Smaller enterprises and startups could also create enormous value for financial services delivery by embracing technology as a way of connecting with customers to create a consistent user experience and provide high degrees of convenience and access to new products and services delivered. This is possible through cloud computing and Internet commerce which allow for the expansion and scaling of products and services to reach global markets rapidly.
Future of FinTech
Regulation is forcing banks to change their business and operating models. FinTech has the potential to drive similar changes in the future as banks are disintermediated or are no longer competitive in certain areas. Startups are catching up quickly in deploying innovative technologies such as peer to peer (P2P) lending system, equity crowd funding and also other niche areas like crypto-currencies, improved financial data analytics and more sophisticated wealth management tools to help people manage their money more effectively.
From my observation, the one challenge FinTech startups will face is the need to clearly understand financial regulations in order to build technologies that are legally compliant while simulteanously pushing boundaries to open up new markets and ensure better customer service.
Over time, I believe that the two key stakeholders such as the private and public enterprises must collaborate closely together in order to broaden technology reach, increase overall competitiveness and foster innovation in the FinTech industry to ensure a better customer experience and increase its competitive advantage in the financial industry.