A niche technology no longer, the past decade has seen fintech become a force to be reckoned with. Game-changing start-ups like Stripe, Circle and the homegrown success story Afterpay have challenged the status quo, given established players a run for their money – and provided better outcomes for customers in the process.
As digital technologies continue to up-end old ways, we’re seeing the emergence of a thriving ecosystem of fintech developers and an extraordinary proliferation of offerings, covering everything from mobile payments and wealth management to alternative funding.
A glance at the attendance list for the Singapore FinTech Festival offers some insight into the scope and scale of the fintech phenomenon. No longer merely the province of ICT whizz kids with an entrepreneurial bent, the event drew some 60,000 delegates, many from the upper ranks of the financial services and technology industries, academia and the public sector.
Venturing into spaces where big banks don’t go
For governments, particularly in emerging economies, fintech represents a golden opportunity to extend access of banking and financial services to a greater number of individuals, rapidly and at low cost.
According to the World Bank’s most recent Global Findex data, there are still 1.7 billion “unbanked” adults globally. Participation in the mainstream economy is limited for many in this cohort. But while they may have never opened a bank account, chances are there’s a smartphone in their pocket. Enter the mobile-first financial service providers who can facilitate instant inclusion by utilising that device to provide access to banking and financial services which historically were beyond its owner’s reach. It’s a win-win, win – for fintech providers, governments and the economies they oversee, and consumers themselves.
Making and policing the rules
That’s not to say governments can or should stand back and watch while fintechs disrupt the sector with innovative new offerings, as the likes of Afterpay and online business lender Prospa continue to do, here in Australia.
On the contrary, the rise of fintech makes the maintenance of a rigorous regulatory framework more important than ever. It’s the sum total of this oversight – regulations, governance, funds, talent and collaboration – that gives consumers, at home and elsewhere in the world, the confidence and reassurance they need to venture into the uncharted waters fintech start-ups represent to them.
There’s also a role for governments to play in promoting financial and digital literacy, particularly among the unbanked and underbanked who may be vulnerable to exploitation.
New opportunities for older players to add value
While fintechs may appear to have stolen a march on established players, with agile, lower cost services a digital-only model can offer to emerging customer groups, they don’t have the field to themselves. There are opportunities aplenty for traditional banks and insurers willing to take a leaf out of the newcomers’ books and utilise digital technology to target customers who might previously have been deemed uneconomic to service.
For example, while Singapore is all set to issue digital bank licenses, the leading banks will not make it easy for these new entrants. They will continue to offer competing digital offerings and will present very stiff competitive barriers to the new digital bank entrants – especially given their ability to continue offering personalised service and touchpoints.
From disruptive upstarts to viable long-term providers
For their part, fintechs must continue to demonstrate their credentials as serious contenders; real alternatives to the established processes and institutions which comprise the old banking and insurance order. They’ll do so by proving they’re viable at scale and have proper compliance and risk management frameworks in place.
It’s a hurdle not all will clear. Historically, start-ups of all stripes have a low success rate and for every Stripe or Afterpay, there’s an array of also-rans whose prototypes failed to gain traction in the real world or proved to be solutions in search of problems.
Those fintechs that base their innovations on real issues which the existing market has failed to address stand the best chance of defying the odds.
Looking ahead to a more innovative future
What does the future of fintech look like? All signs suggest the extraordinary evolution we’ve witnessed over the past decade has a way to run yet. As emerging technologies, including AI and the internet of things, drive disruption and innovation, we’ll continue to see a wealth of opportunities for fintechs that succeed in harnessing their power and parlaying it to benefit themselves and the customers they serve.
Amit Gupta, chief executive, Ecosystm