The growth of fintech has been skyrocketing, as seen in the widespread adoption of blockchain technology, digital banks, and peer-to-peer lending. In the UK alone, there are an estimated 1600 fintech firms, generating a whopping £6.6 billion per year.
But what are the benefits of fintech adoption?
Fintech brings a ton of benefits to consumers and businesses alike. This guide will explore the many benefits of fintech adoption in finance. But first, a quick crash course of fintech.
What Is Fintech?
Fintech, a portmanteau of “financial technology,” refers to technologies created to improve and automate traditional forms of finance and banking.
Fintech can include anything from software programs and mobile applications to complex blockchain networks powering cryptocurrencies like Bitcoins. Everything from consumers’ ability to complete an online transaction to mobile apps that allow you to make an online purchase to tools that enable financial institutions to make quick lending decisions are the results of fintech.
The ability for investors to conduct research, analyze stocks, and see the performance of their portfolio in real-time also exemplifies fintech in action.
Examples of Fintech Products
So, how is fintech being used in 2022? Below find some practical applications of fintech in real-life and some popular fintech products.
1. Mobile Banking
Mobile banking is perhaps the best example of fintech use in real-life.
The ability to check your bank balance, purchase stocks, and even borrow a loan online without stepping out of your home exemplifies the power of financial technology in our lives.
2. Blockchain Technology
Blockchain and cryptocurrency are hallmark examples of fintech in action.
Fintech powers the development and deployment of cryptocurrencies like Bitcoins. And Bitcoin technology has been dubbed the most notorious disruptor of the last decade owing to its widespread adoption as a currency and investment asset.
A Robo-advisor is a digital platform that provides automated financial advice or manages investment with little to no human intervention.
These platforms leverage AI and machine learning to help investors manage their investment profiles. They also help allocate assets optimally and generate portfolios for investors and hence allow all age group users to invest at low costs.
4. Crowdfunding Platforms
Companies like Kickstarter, Indiegogo, Fundable, and others illustrate the use of fintech outside of traditional banking.
Crowdfunding platforms allow developers, creators, and entrepreneurs to receive funding from like-minded people on the platform. These platforms have also allowed individuals and businesses to pull funding from many different sources, all in the same place.
Fintech has also disrupted the insurance industry.
In fact, insurtech (as it has been named) has come to include everything from home insurance to auto insurance and data protection.
Fintech companies are partnering with traditional insurance companies to completely automate the insurance processes, enabling them to expand claim coverages. Insurtech has been designed to improve the efficiency of the insurance industry.
What are the Benefits of Fintech Innovations?
The adoption of fintech provides many benefits to consumers, investors, and business owners. We’ll take a look at these benefits.
1. Greater Convenience for Consumers
Fintech solutions provide the most convenient way of serving your customers.
Companies are adopting fintech because it uses technology to provide a reliable and friendly user experience. With fintech, users can secure an emergency or short-term loan from a bank without leaving their premises.
Blockchain technology, which is also a product of fintech, has made it easier for people to transact without going through lengthy banking processes.
For instance, more and more people are buying property at discounted prices with bitcoins. Amazon is also exploring ways to start accepting cryptocurrency payments. The world is gravitating towards crypto due to its speed, convenience, and lower costs.
For instance, when it comes to speed, most US banks settle transactions within 3 to 5 days. But with bitcoins, the transaction can be completed in a matter of minutes.
When it comes to costs, a domestic wire transfer will cost you around £15 to £35. Sending money internationally can be even more expensive. But with cryptocurrency, the cost is significantly lower.
2. Improved Retention Rates for Businesses
A common goal of fintech providers is to deliver a personalized user experience in the financial sector. It’s the reason behind fintech’s astronomical growth over the years.
A recent Kearney study corroborated this point by revealing that ease of use is the key selling point for fintech products.
By leveraging industry-specific fintech products, business owners can give their customers a personalized experience, leading to better retention rates. A report that gives credibility to this notion is the Global Apps Trends Report. It shows that over 15% of fintech users return at day 7 and 12% at day 30.
Increased retention rates are critical for businesses that are looking to expand without spending much. Multiple studies have shown that it’s up to 25x more expensive to acquire new clients than to retain an existing one.
3. Expedited Transactions / Approval Rate
Another benefit associated with fintech is a faster rate of approval.
When you make an online loan application, it goes through an automated loan approval process, which is fast and efficient.
You can receive same-day funding in most cases, which is only possible because of fintech innovation. Plus, you can receive online quotes from different vendors, calculate the monthly payment amount online, and even apply for a loan online, thanks to fintech.
Traditionally, customers would have to head over to their respective bank branches to apply for loans and transfer money internationally. Fintech-enabled payment systems don’t have such restrictions and transactions can be processed anywhere, anytime.
4. Reduced Costs
A key aspect of financial technology is that with every innovation comes a potential reduction in costs — not just for businesses but consumers as well.
For example, the UK fintech disruptor Cashplus, known for its award-winning Payments API, claims to save companies 50% on transaction costs. Companies leveraging the platform can then pass these cost savings to consumers.
Fintech saves money because there are no hidden fees, which plagues traditional business models. In addition, fintech allows the integration of both digital and physical payment methods into a unified user experience.
5. Increased Efficiency
As with any other technology, fintech increases operational efficiency.
First, automation doesn’t involve human intervention hence less prone to errors. This results in a high degree of efficiency and service quality.
Secondly, fintech facilitates various payment systems, resulting in more accurate and transparent transactions. Fintech allows business owners to invest in solutions that enhance service delivery while ensuring efficiency in all transactions.
6. Increased Transparency
Fintech innovation has also led to improved transparency in the finance industry.
International payment solutions are setting new standards and benchmarks related to global remittances. And with the EU recently publishing new regulations related to online and card payments, discussions about transparency in online payments have never been more timely.
That said, transparency has become a symbol of moral authority for fintech players. In fact, transparency has become key to fintech credibility.
Most governments require fintech companies to disclose fees and the prevailing exchange rates, which helps users significantly lower costs. Most fintech solutions will provide this information beforehand to help users make informed decisions.
Plus, whether you’re sending or receiving funds through a particular payment solution, you’ll get notified of the transaction’s critical details.
7. Growth Driver for Businesses
Fintech companies create systems for businesses to accept payments for trades and services in the most seamless way possible.
As such, it’s safe to conclude that fintech is the driving force for business success.
With their incredible intuition, start-ups and enterprises get a wide array of resources that position them for success. And unlike traditional models, fintech’s low entry threshold makes it easy for businesses of all types and sizes to thrive.
8. Advanced Security
With speedy innovations come the need for tightened security protocols, and fintech innovations are ahead of the curve in this department.
Security in fintech solutions is reinforced via advanced technologies like biometric authorization. For instance, fingerprint scanners are more secure than a pin. Their use makes the payment solutions more secure and futuristic.
Also, blockchain technology is considered more secure than all the other alternative payment methods. While not 100% secure, blockchain is designed to be immutable and tamper-proof. The security and encryption involved with crypto mean consumers can use them without fear of hacking or leakage of confidential data.
The current and future state of fintech innovations look very promising, with the entire industry set to hit a whopping $310 billion in revenue by the end of 2022.
Part of the reasons for the astronomical growth of the fintech industry has to do with the many benefits the technology brings along. From greater convenience and reduced costs to increased efficiency, security, and speed, fintech is indeed the future of finance.
Plus, 82% of traditional financial institutions plan to implement fintech solutions in the next three to five years, meaning there will be many more innovative changes ahead.
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