expressed opinion entrepreneur Contributors are their own.
The pandemic has changed the way people live and how businesses are run. While many industries have had to adapt their processes to the new normal, some have thrived thanks to their digital models. A good example of a boom is financial technology or fintech, which uses technology to provide banking and financial services.
Before the pandemic, fintech was a growth space, with service usage growth in the industry jumping from 16% in 2015 to 64% in 2019. While fintech players are not immune to the impact of Covid-19, they are generally able to recover faster due to their agile models and increased use of digital channels.
Related: Fintechs have the power to advance financial inclusion
Key factors driving fintech growth
Given the trend towards digitalization, let’s accept the fact that fintech is here to stay. With that in mind, let’s talk more about the rise of this field and some of the exciting opportunities in the space.
1. Enter underserved markets
One of the main reasons for the huge increase in fintech adoption is that the industry has managed to tap into an underserved market that traditional banks often overlook. These include the unbanked or small businesses with lower profit margins. Many fintech companies are appealing to these segments by offering easier banking services, including remittances and micro-loans.
2. Increase contactless payments
Contactless payments have proliferated during the pandemic as personal hygiene safety becomes a top priority. Quarantines, lockdowns and social distancing rules have also led to the rise of e-commerce, telehealth and remote work, all of which have further boosted online payments.
You can expect these contactless methods to become part of the new normal due to their convenience. In fact, businesses are now exploring more diverse payment methods, such as QR codes and voice-activated payments, in response to changing consumer behavior.
3. Technological progress
Of course, given that technology is at the heart of fintech, technological advancement has also been an important industry driver. Artificial intelligence (AI), machine learning (ML) and cloud computing are the technologies that are driving the development of fintech and will continue to evolve over the next decade.
Related: Digital twins: AI and machine learning are transforming the fintech landscape
Future opportunities for fintech companies
The development of fintech over the past few years has been impressive. However, given how vast the space is, it is imperative to focus on the key opportunities with the greatest potential. I think some of them are:
1. Embedded Finance
Embedded finance refers to the integration of financial services or instruments into the products of non-financial companies. Embedded finance also helps simplify the buying process and remove barriers to purchase, creating a more seamless customer experience. Some examples of embedded finance include online stores that offer loans or “buy now, pay later” (BNPL) options on their website or app.
Given the growing demand for embedded finance, fintech companies are starting to offer Banking-as-a-Service (BaaS) solutions. While you can deliver these services quickly through APIs, you need to establish a strong risk and compliance strategy as an embedded financial partner for your business.
2. Artificial Intelligence (AI)
The FinTech sector is known to process large volumes of data, which makes AI technology valuable for collecting and storing such information. Depending on your needs, you can leverage different AI applications to help your operations. For example, analyzing user behavior can allow you to provide personalized financial services or recommendations to meet each customer’s needs.
Alternatively, artificial intelligence algorithms can help you make predictions to drive intelligent business decisions. An example is predictive risk assessment, which enables you to detect potential fraud in transactions and minimize the possibility of human error.
Related: Fintech in 2022 and beyond: ‘Balloon’ or ‘Bubble’?
3. Sustainable Finance
Sustainable or green finance is another great opportunity that you can embrace as climate change places increasing emphasis on environmental protection. The banking industry has been aggressively implementing environmental, social and governance (ESG) initiatives – and now fintechs are catching up.
Specifically, companies in the industry are looking for ways to incorporate sustainability into their operations, whether through increased climate-friendly investments or reduced carbon emissions. In this way, they can encourage individuals to be more aware of their impact on the environment and take action.
4. Decentralized Finance
Due to the popularity of cryptocurrencies and blockchain, the concept of decentralized finance or DeFi has gained traction in the fintech space. DeFi refers to an emerging technology that uses distributed ledgers to manage financial transactions, eliminating the need for intermediaries. Fintech has already started integrating DeFi into the interface, so we can expect it to play a bigger role in the future.
Fintech is undoubtedly here to stay, as evidenced by its enormous growth and resilience during the pandemic. In today’s digital age, consumers seek convenience and safety – and fintech is helping to bridge this gap in financial services. So going forward, I think we can expect more innovations in this space to provide accessible solutions to more underserved audiences.