FinTech is all about transformation, disruption, and innovation for changing the way financial institutions worldwide function. A wide range of enterprises who are leveraging technology to deliver more bolder services, consumer and organizations. Financial services are going through sweeping technological changes that are profoundly affecting the way we have been doing business. Although still in the nascent stage, these technological advancements have made a major impact within the financial sector and show great promise for providing ease in access to financial services. Further, it aims at reducing costs associated with loan processing and underwriting. The emergence of FinTech has boosted financial literacy among the public about finance, investing, and institutional banking. It has provided them with resources and information about handling their finances, focus on savings and rethink their long-term financial objectives. In the payment sector, this revolution has led to innovations like virtual and mobile banking.
As per the Financial Stability Board, FinTech can be divided into 5 broad categories which are:
- Payments, Clearing, and Settlement
- Lending and Capital Raising
- Investment Management
And according to a Bank of England Governor, FinTech has the potential to unbundle banking into its core functions. But industry watchers are wondering if this could anyway lead to financial instability. The reason being, most of FinTech start-ups are not regulated as much as the traditional financial institutions. So far, the open financial markets have seen FinTech develop rapidly like the Kenyan based e-payment system M-Pesa. Since its emergence a decade ago, it is one of the biggest FinTech success stories. By effectively transforming your mobile phone into a payment account – meaning bringing the ease of access to financial services for the previously unbanked people. M-Pesa is an impressive example of how it boosted the financial sector and increased efficiency across the economy. It also brings the added advantage of bringing in the savings of unbanked people into the financial system, leading to higher sum or funds available for investment. So, if FinTech can improve the financial stability of any economy as it has in Kenya, then it would be helpful to divert funds for investing in human capital, industry and infrastructure.
In China, where e-payment service providers like WeChat and Ant Financial have dominated the market in a country that accounts for more than half of the world’s online payments. Recently, China has introduced a market-clearing interest rate. But by by-passing the credit card companies and state-owned banks, FinTech has driven increased efficiency in the country’s financial system.
FinTech has the potential to increase the economic growth of emerging and major economies through efficient capital allocation. With financial intermediation playing an essential role in every economy, technological progress in this area will generate the type of returns that proved more elusive with other innovations. So, FinTech could very well be that digital-era innovation which we all have been waiting for raising the economy and avoid a sluggish growth in the future.