Where is Fintech going? The future of Fintech in financial services will mean the landscape of the industry will look very different. The impact will be significant in years to come due to the growth and development in blockchain technology in general, and specifically Fintech.
Fintech is not going away and digital currencies are here to stay
I recently completed a Fintech short course via Harvard University and found the most fascinating insight to be the challenges that reflect the complex but innovative nature of the financial technology market. Blockchain technology has much wider application than merely crypto currencies and Bitcoin. Fintech has challenged and transformed the financial ecosystem across industries, countries and the globe. Fintech is undergoing consolidation and maturation and has created the need for regulation.
Fintech is the most promising innovation since the credit card, which has transformed the payment system worldwide. From the way you borrow money, or invest, or save for retirement or move money internationally, or even buy coffee, Fintech will play a role, particularly in the future of financial services.
Changes in the demographics of a population, technology advances and the fact that government and the regulators are often slow to adapt to change, make way for new products and most importantly, a new way of doing things. Making use of Fintech is just that.
Arguably, Fintech makes cheaper options available too, which means increased accessibility (and popularity). One cannot deny that a continent like Africa is perfectly positioned to benefit from developments as mobile money is often the easiest solution to avoid travelling far distances to make financial transactions. This has already been happening for years and as technology evolves, mobile money capability and Fintech influence are further shaping financial services on the continent.
An African consumer, like any other consumer under a certain age is also likely to be drawn to faster and easier access to financial services. The antiquated art of going to the bank to open an account is becoming a distant memory, and Covid-19 has of course made way for more digital capabilities to evolve, encouraging social-distancing. Banks are vulnerable to innovations in payment ecosystems and many have adopted technology to stay relevant.
The payment industry has seen numerous entrants of diverse Fintech players in recent years, from giants like Facebook and Google to start-ups that are presenting increased competition for banks, processors and networks. The prominence of smart phones as a channel has evolved customer expectations and real-time account transfers. This digital revolution will extend beyond payments and cards causing significant changes in all areas of finance. An example is the development of facial recognition payments, which of course has data privacy concerns.
I am convinced peer-to-peer (P2P) online sharing models that negate the need for having a central server, will also increase and continue to impact financial services in a big way. Blockchain technology has opened doors and financial services offerings from P2P companies could be considered by consumers to be more trustworthy than their older counterparts. Almost daily, there seems to be something new within technology to discover.
Cryptocurrencies will see more widespread adoption over the coming years, but will also not entirely replace existing methods of payment such as credit cards, ETF’s, etc. Many still believe crypto-assets are mostly for money-launderers or dark web transactions, and scandals such as the recent Mirror Trading International (MTI) disaster, coupled with the volatility crypto-assets are known for, don’t help. Payment via cryptocurrencies is cheaper and quicker than traditional payment methods, which typically consist of a cardholder, issuer, merchant, acquirer, international card payment scheme and processor. All these layers add to costs. Before cryptocurrencies will become mainstream, issues like volatility, regulatory uncertainty and security concerns will need to be tackled.
The concerns around cryptocurrencies are discouraging to genuine investors but regulation is likely to bring some stability and there is also a lot to be said for making use of the potential crypto offers. Transaction fees are low and because of the limited number of currencies available, it makes the value of Bitcoin and other cryptocurrencies invulnerable to deflationary pressures, unlike other traditional currencies.
Unfortunately, many alternative payments and start-ups will fail, so physical and digital cards will remain for a long time because behaviour is entrenched and trusted brands in this space will still matter.
Where to from here?
My advice is to have a positive attitude towards change, and to be flexible. Be active, take part and see disruption as an opportunity. The use of Artificial Intelligence (AI) has revolutionized the finance industry. It has improved precision levels and sped up resolution periods. AI has streamlined processes to define customer profiles on their level of risk. As an example, AI-powered models can provide immediate assessments of a customer’s credit risk.
My prediction is that robo-advising and human advisory involvement will co-exist going into the future. Many people are emotional about money and need a trusted adviser to carefully guide them through the complexities of investing, which is something machines cannot replicate. Fees will be a concern and need to be sustainable, but it’s important to realise that robo-advisers may offer a convenient platform to keep up investment performance. While there is room for growth, diversification is still an old faithful (and many traditional investment products deserve their permanent place).
When it comes to the future of Fintech in financial services, I don’t believe crypto-assets will reach their predicted heights, but there is certainly a place for them, and they cannot be ignored. However, as with most trends, criminals are painfully aware of ways to exploit, and while there are many ‘good guys’ out there, a firm set of rules governing Fintech will create greater security, transparency and comfort for all. It’s encouraging to see the progress of the Intergovernmental Fintech Working Group (IFWG) so far and I predict that the FSCA will start approving applications for crypto providers later in the year. Working with professional compliance support that has the necessary skills and experience to guide you will make all the difference.
Article by Jan Scholtz, Director at Compli-Serve Gauteng