The financial technology industry, or fintech, is thriving on a worldwide level, according to the EY’s Fintech Adoption Index. The index says that more than 80 percent of customers are aware of fintech and 33 percent of them are using more than two services. These percentages may not be exact, however, because there are customers that may not know that financial services they are using are fintech or simply don’t know what fintech means.
What Is Fintech?
Fintech is defined as an emerging financial services sector because of the technological innovation that has occurred. A good example of fintech is Bitcoin, but it also encompasses peer-to-peer lending and the payment platforms, such as Ozan, that are used to store information and easily make payments to people and businesses all around the world. Common fintech areas include:
- Digital money
- Blockchain technology, such as Bitcoin and Ethereum, and everything that has anything to do with blockchain tech.
- Insurance industry products, such as Insurtech, which have technologically innovated the insurance industry.
- Programs that help ensure financial service firms are compliant with strict rules.
- Algorithms that give financial advice.
- Financial sector cybersecurity
As for who uses fintech, nearly anyone can. Banks engage in fintech for B2B purposes and B2C for small business owners and consumers. Mobile banking, analytics used to measure baking performance, and the ways in which information is transferred are all examples of fintech. A person can be surrounded by the many practices that are defined as fintech and not realize it. That is because it’s emerging everywhere in some form. However, its adoption is slower in some countries than in others.
Fintech Adoption Across the Markets
China is leading the way in fintech adoption. India comes in second place, the UK in third, Brazil in fourth, Australia in fifth, Spain in sixth, Mexico in seventh, Germany in eighth, South Africa in ninth, and the U.S. in 10th place. The average adoption rate, according to EY, is 33 percent, and that is where the U.S. stands for now.
The EY Fintech Adoption Index states that fintech has been adopted in most countries in some form. What is driving the adoption is the creation of new services and new players that want fintech to be more widespread. Right now, the most popular services are money transfer services and payments. There is fintech growth in the insurance sector.
EY has also found that users prefer using digital channels over the old methods when it comes to managing their lives. Millennials are integrating fintech into their lives at a slightly faster rate than generation X. EY expects the adoption rate to increase to 52 percent globally.
Aside from money transfers, payments, and insurance, fintech is impacting other products: savings and investments, financial planning, and borrowing. To break these down more, savings and investments involve the following:
- Peer-to-peer investments
- Crowdfunding platforms
- Spread betting
- Online stockbroking
- Online investment management and advice
- Using peer-to-peer platforms
- Borrowing from lenders that offer short-term loans
Financial planning covers financial planning tools and online platforms that assist with creating budgets.
Everything goes hand in hand because each type of service has an element that is important to an overall financial plan. For example, money transfers and payments can cover online foreign currency exchange, like Ozan does in a simple app; cryptocurrency payments; money transfers through non-banks; and using a mobile phone to pay at the point of sale. Insurance companies are using telematics to reduce car insurance rates, comparison sites are finding the best prices for consumers, and health insurance prices can be activity based.
As fintech adoption growth continues, the possibilities for the existing services are vast, but more services will emerge as the adoption rate surpasses 50 percent.
The Rise of Disrupters
As fintech advances, disruptive innovation is happening. Cryptocurrency disrupted the market in a major way. Cryptocurrency, which is based on the blockchain technology that gave birth to Bitcoin, is the perfect example of a disruptive innovation. It has been the subject of controversy since it’s not a physical coin. Instead, it’s digital currency, and people are buying it as a way to invest in the highly secure and widely used blockchain.
Sometimes, a fintech service can disrupt itself in order to challenge itself. Regtech is a good example of this. Regtech is a tech firm that helps services within the financial sector stay in compliance with very strict rules.
Right now, the firm is working to digitize the rules for money laundering in order to reduce the illegal act. Regtech is also working on customer verification processes that can identify financial institution customers to avoid fraud. In other words, fintech is at the helm of creating greater protections for consumers. To achieve this, it is entering the realm of machine learning and artificial intelligence.
Another disruptor is the rise of open banking. The definition of open banking is rather frightening in that it entails the allowance of third parties to use bank data to build services and applications. Those that support open banking state that the ability of app developers to access bank data would allow them to create applications that would give customers better control over their money, allowing them to make better financial decisions.
Reaching Out to Underbanked Societies
With so much innovation, it’s difficult to believe that there are areas of the world that don’t have access to fintech, but there are many. That is why fintech companies are working on products that target areas of the world that need access to financial services. Offering financial services is the key to helping impoverished areas of the world fight for a chance to rise up and compete with the developed world.
However, being unbanked or underbanked isn’t just a third world problem. The FDIC says that there are approximately 10 million people in the U.S. that are unbanked or underbanked. This is something else that fintech can help solve. In a way, it has already started with the invention of digital wallets that virtually anyone with an income can acquire.