Today, you’re not a frequent visitor of a physical bank. But there are probably at least several financial apps on your phone home screen. McKinsey research states that it is a sign of a new era in payments.
The demand for financial technologies results in the popularity and significance of fintech software development services.
Fintech deals with the use of financial technology which aims to upgrade and optimize the delivery of financial services. Fintech involves a big number of tools and apps, some examples of which are mobile banking apps, online investment platforms, cryptocurrency, and blockchain technologies.
Fintech is all about using innovation to make financial services more accessible, efficient, and secure. This includes companies that implement technology to deliver these improved financial solutions to both consumers and businesses.
Most fintechs were launched after the 2000s. These companies, still in their growth phase, are revolutionizing money movement with convenient solutions for individuals and organizations alike.
The fintech landscape is evolving, so it’s not just big banks anymore – tech companies are jumping in too, creating a whole new world of financial tools. Need to split a pizza with a friend? There’s an app for that (Venmo, Zelle). Want to invest your spare change but feel overwhelmed by the stock market? Robo-advisors can help you out. There’s even a way to buy and sell things using digital money (cryptocurrency), though that one might be a bit more complex. The point is, whatever your financial need, there’s probably a cool new fintech solution waiting to be discovered.
Fintech came to the forefront in around 2010, mainly due to payments.
The influence of fintech is rapidly expanding across all aspects of finance, as it reaches the areas previously thought to be immune to digital disruption. This growth is undeniable: in the United States alone, nearly half of all consumers in 2021 relied on fintech products, primarily for peer-to-peer payments and money transfers outside traditional banks. Fintech companies have also seen a surge in investment in recent years, the venture capital funding of which is soaring from $19.4 billion in 2015 to $33.3 billion in 2020.
Banks don’t lose the opportunity to develop their own fintech-informed digital products and services. In the future, competition for consumers will probably increase.
The Role of Banking Industry in Digitization
Banks are undergoing a second wave of digitization, which is happening as a result of the shift from physical branches to mobile and online services. This initial digital push, focused on apps and basic automation, left banks with outdated systems – a burden known as technical debt. This created a gap for nimble fintech companies offering more user-friendly solutions. Now, banks face an upgrade for both their customer-facing interfaces and internal systems. Their established infrastructure could be an advantage when adopting and deploying innovative technologies.
What Are the Trends Shaping the Future of Fintech?
Fintechs are poised for continued success as a result of global digitalization and e-commerce growth. Digital channels are now handling the majority (73%) of all bank interactions globally, so the demand for fintech solutions is surging even in B2B sectors. Fintechs must navigate evolving regulations and invest in compliance resources in order to succeed.
Despite facing temporary challenges, fintechs have ample opportunity for future expansion within the growing financial services landscape. According to Statista, the revenue of the global fintech sector is predicted to reach 141.18 billion U.S. dollars in 2028. This surge will be driven largely by emerging markets, particularly in Africa, Asia-Pacific (excluding China), Latin America, and the Middle East.
The recent market correction impacted fintechs unevenly. Growth-stage companies (series C and above) felt the squeeze the most, while early-stage and pre-seed ventures showed greater resilience. B2B fintechs weathered the storm better than their B2C counterparts. Within the industry, BaaS (Banking as a Service) and embedded finance, along with services focused on SMEs and corporate value-added functions, proved most resistant to the downturn.
Technologies Driving the Future of Fintech
In the next few years, the following technologies will greatly influence the fintech industry:
- Artificial intelligence (AI)
- Blockchain
- Cloud computing
- The Internet of Things (IoT)
- Open-source software, serverless architecture, and software as a service (SaaS)
- No- and low-code development platforms
- Hyper-automation
How Can Fintechs Grow and Enhance in a Sustainable Way?
The playing field has changed for fintechs. Today, sustainable business models are key, as unbridled growth is no longer a viable strategy. Fintechs can maximize their influence by pursuing four strategic directions:
Financial fortitude. Master cost control to navigate the evolving funding environment, while staying agile, adaptable, and compliant.
Building a strong foundation. Focus on a stable core business with a proven market fit before scaling. Prioritize a solid foundation for sustainable growth.
Strategic partnerships. Pursue targeted mergers and acquisitions (M&A) aligned with a value-sharing program. Build win-win partnerships with established institutions and other fintech players.
Maintaining the spark. Preserve the core strengths that fueled disruption – agility, innovation, and a vibrant company culture.
Open Financial Data
Financial data tracks our financial lives from everyday purchases to long-term loans. Traditionally, banks held this data close. Sharing it felt intrusive. However, this is changing with open banking, where consumers (with their consent) allow access to their financial data by third parties.
This access allows new players, both financial and non-financial, to create innovative products and services tailored to individual needs. While still in its early stages, open banking holds immense potential to transform how we manage everything from bank accounts and credit cards to payments, loans, and even insurance.
The rise of digital banking habits, partly fueled by fintech, seems to be accelerating this shift towards open banking.
The Impact of Fintech: A Call to Action for Traditional Institutions
The rise of Fintech has exposed weaknesses in traditional financial institutions, both in digital experiences and operational efficiency. Even if their market share isn’t heavily impacted, fintechs have fundamentally reshaped customer expectations. To survive, incumbents need to adapt to this new reality. Here are seven potential strategies:
- Fintech acquisition. Acquire a promising fintech for its user base, technology, or talent. However, successful integration post-acquisition is crucial.
- Strategic partnerships. Partner with a fintech to accelerate product launches and reduce implementation costs.
- Investing in fintech. Invest in fintech companies to gain a foothold in the market and mitigate disruption.
- Fintech-like transformation. Transform internal processes and offerings to be more agile and customer-centric, mimicking the strengths of fintechs.
- Internal fintech development. Develop internal fintech units to disrupt their own business model before external players do.
- Banking as a service (BaaS). For some institutions, offering BaaS services to fintechs, retailers, and telecom companies could be a strategic advantage.
- Selective response. While ignoring competitors is usually unwise, some incumbents with strong regulatory protections might consider this approach.
The optimal approach likely involves a thoughtful combination of these strategies, tailored to the specific circumstances of each institution.
