Top 3 Changes in the FinTech Industry

Banking, insurance, and investing have been evolving in the past few years. It only makes sense, because looking at how our money is moving from fiat to digital blockchains, these industries need to change with the tiimes. When we talk about fintech, we're referring to the technology used to deliver financial services. This can be as simple as a Venmo transfer or as complicated as buying and selling cryptocurrencies online. Thanks to the internet and our increasing affinity for having everything on our smartphones and tablets, the industry is greatly accelerating to new heights.

While the world of FinTech conjures an expansive list of fast-rising startups and threatening traditional big banks and Wall Street, the industry also represents financial services businesses are using to stay competitive. With the right moves, small startups can begin partnering with corporate behemoths.

But that is what we've seen with new technologies and innovations--with their potential to disrupt the traditional infrastructures we have, there is also an equal power to revolutionize financial services for the better. And we're already seeing these great leaps in specific financial services.

The benefits of financial technology are extensive.

- Fast and convenient: Fintech products can be delivered online and are easier and quicker for consumers to access. People today often have their own digital wallets to monitor transactions and withdraw money without physically visiting a bank.

- Various options: Customers now have access to products and services available worldwide because they can be bought remotely. Stock trading apps allow you to manage your assets by using an algorithm that simplifies assset recommendations and portfolio management. The advanced technology behind these applications increases your efficiency while lowering costs.

- Cheaper deals: Fintech companies don't need to invest in physical infrastructures or networks. This can easily translate into cheaper prices for customers.

- Personalised products and bespoke solutions: With advanced technology, companies can collect and store your data and offer more personalised products or services. A great example of this is Alibaba using your search to provide better digital commerce to customers.

As banks are transitioning online, society is also becoming cashless. But how much has fintech changed over the decades? What big changes defined each era? Let's quickly dive into the history of this industry.

Fintech 1.0

During the late 19th century, countries installed transatlantic cables to enable the first electronic fund transfer systems. During this time, companies like Fedwire used technologies such as telegraphs and Morse code to preserve people's privacy. With post-war infrastructures at that time, this improvement was already revolutionary.

Fintech 2.0

The installation of the first automated teller machine in 1967 marked the start of our eventual transition from analogue to digital finances. With the establishment of the National Association of Securities Dealers Automated Quotations (NASDAQ) and the Society for Worldwise Interbank Financial Telecommunications (SWIFT), there would be an increase in cross-border payments and digital stock exchange.

When the bank mainframe computers were installed in the 1980s, the online revolution for financial institutions began. When PayPal established itself as the first digital payment system, the world increasingly went online.

Fintech 3.0

After the global financial crisis in 2008, there was a visible lack of trust in banks and other similar institutions. During this time, blockchain technology made waves in the industry as bitcoin was officially launched. Not only is cryptocurrency changing the way people do their finances, this also made smartphone adaptation become more seamless. More people now had access to new products and services, being able to invest through their phones. To ride along the digital banking wave, Banking as a Service (BaaS) platforms like Treezor and SolarisBank made banking easier by stepping away from the complicated legacy systems and creating Open Banking.

With different countries recovering from the pandemic at different rates, it was difficult to predict what the future of fintech will look like. During May 2020. Venture Capital fintech investment dropped by $6.1 billion, the lowest plunge we have seen so far. Then, 2021 saw the industry investment bounce back to $7 billion as new businesses are popping up with more ways to make finance easier, faster, and more efficient everyday. So, what are five developments venture capitalists are watching out for when it comes to fintech?

1. Blockchain technology

Cryptocurrencies have proven to be the more secure, cheaper, and faster method to process cross-border payments. Venture capital investments are interested in decentralised finance, smart contracts, and peer-to-peer lending without the need for third-parties or middlemen. Experts also predict that most household names in the market will try to cater for customer preferences and adopt cryptocurrency to their business.

2. Social entrepreneurship

With different socio-political issues making it to the news, venture capitalists are interested in fintech companies that aim to solve social problems through social entrepreneurship and innovation. When done right, a good social enterprise can actually help more communities than a benevolent central actor like the government. Venture capitalists are drawn to the ones with a strong mission and purpose beyond profit.

3. Marginalized markets

Underserved markets are the places where there is a high density of people who do not receive the necessary banking services that they need. Venture capitalists are willing to back businesses that target such underbanked or unbanked communities, which traditional financial institutions have a hard time reaching.

4. Environmental work

As climate change is becoming an increasingly pressing issue, venture capitalists are looking for fintechs that are involved with envitonmental action. This may take the form of sustainable or ethical banking, where customers can choose a service provider that can reduce their carbon footprint. These fintech startups, then, are not only focused on the numbers in people's accounts but also on doing critical work to save the environment.

5. Neobanks

With no physical branches and only a very user-friendly mobile app, neobanks have the greatest potential of gaining venture capital support. As a digital-only bank, they can invest more power into generating big checks and ensure quality to their services.