We can all agree that this year has witnessed unprecedented levels of disruption across all industries and human activity all around, and the financial sector was at the top of them.
Banks all over the globe closed their doors, at least temporarily, experiencing slowdowns and hiccups due to the rapid spread of the Covid-19 pandemic.
During this time, however, Fintech companies stepped into the limelight and filled the gap left by traditional banking due to their online-based solutions that demand as little human contact as possible.
With this, experts from across the board expect Fintech to grow even more, since many customers who leaned on their services during the worldwide lockdown for convenience, will continue to use their services in the foreseeable future.
According to a study done by Netherlands-based accounting firm KPMG, global investment in fintech in the first half of 2018 amounted to a record US$57.9bn across 875 deals – a significant increase from the US$38.1bn invested throughout 2017.
What is Fintech?
Fintech, which is short for financial technology, is used to categorize and describe companies within the sector of mobile payments, money transfers, loans, fundraising, and asset management.
“Global investment in Fintech has skyrocketed from $930 million back in 2008 to over $12 billion by the beginning of 2015. Europe experienced the highest growth rate, with an increase of 215 percent to $1.48 billion in 2014,” a recent report by Accenture highlighted.
Fintech and the business world
Fintech’s rise and emergence within the entrepreneurial ecosystem has completely transformed the way organizations do businesses; by turning the traditional financial model on its head, fintech has stepped up to give customers an easier, faster, and more convenient option than before.
Setting up a new business has become much cheaper and easier to do due the mass availability of online financial services, and this has reflected greatly on startups’ ability to grow much faster.
Fintech companies are more agile than traditional banks, in the sense of not having huge overhead costs and payments to make, thus allowing them to narrow their focus and attention on innovation and disrupting the market with their solutions.
Smartphones and Fintech
One cannot argue with the fact that smartphones act as the primary backbone of the fintech ecosystem, greatly thanks to the “always online” culture that we reside in today. Through constant and direct access to the Internet, and the myriad of services and apps that feed it, people’s behavior has drastically changed in the last decade.
In light of these developments, there is an expectation of being able to handle one’s financial affairs as seamlessly as checking email or posting on Facebook.
Rapidly growing sector
In the U.S. and Europe, Fintech “ecosystems” have stimulated technological innovation, made financial markets and systems more efficient, and improved the overall customer experience.
According to study by Strategy&, these ecosystems — composed of governments, financial institutions, and entrepreneurs— have also shown that they can energize the broader local economy by attracting talented, ambitious people and becoming a locus of creative thinking and business activity.
However, Gulf Cooperation Council (GCC) countries are lagging behind, but not for long, since they are attempting to establish a more robust fintech ecosystem to nurture locally-grown startups.
“Moreover, a consensus is emerging among governments and financial institutions that nurturing these ecosystems is important and beneficial for the region. Indeed, there are already some success stories in the GCC, particularly in the United Arab Emirates (UAE) where incubators, enterprise development funds and programs, and innovation hubs are supporting the creation and growth of local entrepreneurs,” the report stated.
The Strategy& report highlighted that these ecosystems are critical to nurturing the kind of technological innovation necessary to make financial markets and systems more efficient and improve the overall customer experience.
“A vibrant Fintech ecosystem can stimulate the broader local economy by attracting talented, ambitious people and becoming a locus of creative thinking and business activity, since they enable growth opportunities for many other sectors,” it highlighted.
There are a plethora of ways Fintech can help boost the startup ecosystem, and push it toward becoming more financially stable and successful due to the ease and convenience of their solutions and services.
Let’s jump right in.
A little over a decade ago, receiving a business loan meant a visit to the bank, a truck-load of paperwork, complex applications, a lot of forms to fill, and a long wait. A lot of these startups failed to meet the standards banks set, and attempted to look somewhere else.
Fintech has stepped into this role, with some allowing businesses wide access to get their hands on funding. An example of this can be seen through solutions that allow some lenders to complete the loan process online. Business owners don’t need to gather documentation because they can simply link online accounts to their application.
This gives lenders more insight and information about the company beyond credit score and owner stakes. In addition, these solutions are much quicker than traditional means, by receiving approval in a matter of days or even hours.
Credit cards’ fall from grace can be mainly accredited to companies such as PayPal and Stripe, who have allowed entrepreneurs and SME owners to accept payments, send invoices, as well as pay creditors and employees using a computer.
In parallel, this is a saving grace for many businesses, since this unlocks the ability for merchants and startup owners to make transactions using credit and/or credit cards without the need for a merchant banking account.
Even now, the smallest of startups has the ability to transfer and receive payments using mobile phones just with the right app downloaded.
Never-ending payment technology
Many large companies rely on larger partners or affiliates to remain afloat, fintech has allowed these companies to transfer money to each other in the simplest of ways while conforming to regional and international regulations, making this monumental task even simpler.
This not only gets the money where it needs to be and fast, but also keeps these transactions and finances in compliance with anti-terrorist, banking and other payment regulations set forth.
Check payments are considered an SME’s worst nightmare, since sometimes it takes excruciating amounts of time to cash them in and get cleared, especially when these companies need a rapid surge of cash flow.
The beauty of Fintech is that it turns this process entirely online, while making it faster for an organization to access their funds. Some companies, for example, offer a service that processes the payments overnight, so the business has money in its accounts by the next day.
This is ideal for landlords and real estate companies that tend to receive monthly rental payments.
This is especially useful for younger startups which experience trouble in managing their bill payments online. Small business owners and some startups may have trouble managing their own routine bills.
Thus SMEs might hope to delay payment until the due date to help manage operating cash, but at the same time, these businesses don’t want to pay too late because they may incur late fees, damage their credit and get a bad reputation.
Some of these fintech solutions include the ability to gather all their bills in one place, which offers help in managing these payment to ensure that they are being paid on time, and sometimes being paid online.
The rise of Fintech has opened Pandora’s Box of financial opportunities, allowing businesses to offer more services at the fraction of the price.
In retrospect, entrepreneurs and SMEs need to keep their eyes wide open on the advancements the fintech sector is evolving into, since they have the full might to improve their services and business, as well as stay at the forefront of their respected markets.