21 Nov The pros, the risks and the revolutionary side of fintech

Fintechs are gaining more and more ground. From platforms to mobile apps and other technologies created to improve and automate traditional forms of finance for businesses and consumers alike, fintech is redefining a lot of things, from the way we do businesses to how we make a simple transaction.

In Europe alone, according to McKinsey, fintechs have moved from the borders of the finance industry all the way to to its core. Their performance, however, varies widely. If all countries could match the best in the region (UK or Sweden), the economic benefits would be considerable.

The fintech sector raised a whopping $121.6 billion, a 153% year-over-year increase on the scale of global venture capital deal value”, according to the 2021 Annual Fintech Report from Pitchbook.

“Although this year saw only a fraction of that figure — about $29.3 billion across 1,233 deals in the first quarter and $21.1 billion across 1,227 deals in the second quarter — the numbers remain historically high. In all of 2020, for instance, fintech companies raised $47.9 billion, roughly $2.5 billion less than the first-half total for 2022.”

What makes fintech so bright and shiny

Technology has always proved to be the engine driving capital market efficiency. This applies not just for the end-users or the customers, but also for those acting in the industry and on the economy in general.

Fintechs are bringing new technologies to market fast and with a great impact. This puts them on a pedestal of “force for growth, modernization, and customer satisfaction in Europe’s financial-services sector”, according to McKinsey.

The customers’ constant growing appeal towards fintech is based on the fact that they can create and obtain great value through superior service at a lower price, while minimizing the time spent in the process. Not to overlook the sentiment of accomplishment generated by fulfilling customer needs easier and smoother than going the classical way.

In the financial ecosystem, fintechs are “a catalyst for disruptive innovation and growth,” says McKinsey. The 2 pillars on which Fintechs are based, agility and speed are enabling them to adapt to changes and accommodate a variety of trends that the financial sector is facing, such as embedded finance, distributed-ledger-technology, etc.)

As for the overall economy, fintechs are boosters of growth. For example, as of June 2022, in Europe alone they are responsible for creating over 134,000 jobs, which in today’s shaky environment is considered more than a simple “way to go!” With fintechs generating special hubs where they activate , they have a direct and positive impact on the overall revenue of those specific areas.

A different POV: Is fintech a risky business?

Like any great discovery, fintechs come with a certain risk exposure. Since they’re based on technologies which are evolving and expanding at a very rapid pace, they need to adapt fast. While they do so, they’re faced with a series of risks.

a. Fraud and regulatory reporting is still an area that fintechs have a hard time taking good care of.. It’s quite a challenge for them to adapt their internal processes to match the speed of fraudulent procedures that keep surfacing. Submitting such data to relevant authorities in order to demonstrate compliance with the necessary regulatory provisions is also an area where fintechs need to improve.

b. Data privacy, the everlasting and dreaded problem of this century, seems to be a common issue with fintechs too. It’s often the case that based on the simple mantra of “collecting data for better services” some data might be used inappropriately. Fintechs need to factor in procedures that are more transparent, more clear and more secure. Not just for the sake of clean public image, but because privacy truly matters.

c. Anti-money laundering and countering terrorist financing. Mantas Katinas, managing director at Invest Lithuania defines this as “a major risk in its own right, which must be mitigated appropriately in the fintech world. Regulators could share black lists or white lists for this purpose.”

Cybersecurity plays a major role in fintechs. Whether we are talking about the most popular trends or about “the not so worrying ones”, cybersecurity is key in protecting personal and company data. From the common mobile banking apps to complex electronic payments systems or even crypto trading – they all come with security risks.

How Fintech is influencing certain industries

A. Real-estate

Despite being on the rise, especially given the latest explosion for properties’ prices, real-estate still deals with slow processes and outdated systems. This opens the door for creating better financial services through technology.

A great example is Divvy Homes. They are basically buying homes for clients who can’t qualify for a standard mortgage and then become their landlord. Customers can access a digital rent-to-own service that lets them rent a property and gradually invest in buying it when the lease is up. Simple, easy and transparent.

Forbes has identified no less than 16 challenges that real estate investors must deal with, one of them being the lack of funds. This is where fintechs can help through PropTech lending. This occurs when a fintech company offers a loan to an individual or firm with the principal aim of purchasing a property.

The real estate industry can also learn from real-time property data. This refers to information that’s presented in real time, as the property or properties are acquired. This way real estate investors can keep track of what buyers are willing to pay based on real-time purchases, with features such as blockchain technology, cryptography and so on.

Another example of real-estate companies leveraging fintech is Morty. This online mortgage platform aggregates mortgage rates from a range of lenders, offering buyers an easy way to search for competitive rates.

Fintech can also help with risk management by identifying, assessing, and controlling threats to a property’s estimated value and projection. The list continues because there possibilities are endless. Here, Forbes selected 5 real-estate companies thriving in their sector due to fintech services.

B. Healthcare

The healthcare sector needs the fintech touch in the same way as many other sectors do. Its processes and flows are old, slow, and in great need for speed and efficiency in improving ways of working for medical staff and delivering services to patients.

Only recently, the fintech sector has helped healthcare at its worst. During the pandemic, when making payments was a challenge, fintechs made the process simpler and faster, helping those in need to access healthcare services fast.

Fintechs have touched the healthcare sector in many other ways, including lending. This entails facilitating access to funds for medical resources on credit. This way patients can cover their regular medical needs, dental or any other personal medical services.

In US, the Health Wallet is “a new fintech way” that eases the process of creating and saving up funds for health services.

In 2020, the infant mortality rate was 5.44. This rate was 50th among the 195 countries and territories measured, and significantly higher than in dozens of other developed countries such as Sweden (2.15), Japan (1.82), and Australia (3.14). Given all these data, the need for preventive medicine becomes mandatory.

SPD Load put together a list of 5 Healthcare fintechs worth learning from as these companies are focusing primarily on customer engagement, price transparency, patient financing, and fast payment systems.

C. Travel & Hospitality

When we think about bettering the travel and hospitality sector through fintech, we think of efficiency, reducing costs and providing enhanced customer experiences.

Curiously enough, one of the most important problems that this sector is facing is related to online payments. Ever since the pandemic started customers have experienced issues in the payment process and also faced fraudulent practices. Secured websites or apps that facilitate and secure transactions have become a must.

The same applies to the lack of available payment methods which “snowballed” into customers renouncing to carry out the transaction. From Open Banking, to BNPL (Buy Now, Pay Later) or using Cryptocurrencies, customers’ needs dictate a wider range of payment methods which the fintech industry is ready to support and develop.

Companies across the travel and hospitality sector need to step up their game and according to Amadeus “Travel FinTech investment trends” report they seem to be in sync “as fintech and payments were viewed as a high priority by 9 out of 10 respondents”.

Fintech has gained a pretty funny definition, being considered “the industry working to make the world better, without you even noticing it”.Taking into consideration all the above, it’s clear that there’s also a bit of truth in it.

The beneficial influence of fintechs in various industries is a given fact and, according to iShares.com, “we expect fintech to become increasingly important as the boundaries of the digital and physical worlds blur further. The global fintech market is expected to reach $332.5 billion by 2028, representing a 20% CAGR (compound annual growth rate) from 2021’s $112.5 billion market.”