Digital transformation has proved effective in the reorientation of market outcomes for the domain of financial services. The introduction to fintech and the future of finance are closely related in more ways than you can imagine. From the top, fintech seems to be all about using technology to transform traditional banking and financial services.
However, fintech also contributes to financial inclusion enabling better efficiency and fostering the global digital economy. The short-term benefits of introducing technology in finance have been cementing the foundations for fintech. On the other hand, it is also important to look for the bigger picture with fintech and its role in enabling new perspectives on banking and financial services.
The impact of fintech on existing markets and the drivers of innovation in fintech have also emerged as crucial priorities for decision-makers. Therefore, any guide on the future of fintech and banking services would emphasize not only the definition and benefits of fintech but also the technologies responsible for its growth.
The following post helps you establish a clear impression of how fintech could influence the future of finance. The post serves as an outline of the significance of fintech and the different factors fuelling its growth. Most important of all, you can also learn about the potential risks and predictions for the future of fintech here.
Importance of Fintech
The most important criterion for a new technology revolution to sustain over the long term would be its relevance. Will fintech stay relevant for banking and financial services in the future? You can discover the best answer to this question by reflecting on the significance of fintech. Interestingly, the responses to “What is the role of fintech in finance?” would draw you frequently towards the definition of fintech.
Now, you can find multiple definitions of fintech, depending on how technology is used for financial services. However, the commonly accepted definitions associate fintech with the transformation of user experience in financial services. Fintech is also responsible for initiating innovative developments in business models, processes, products, services, and applications.
One of the striking highlights of the importance of fintech would refer to the relationship between fintech and financial inclusion, as technology lowers cost and friction. With the help of technology, financial service providers could reduce the friction for users at different steps of the financial service lifecycle.
Whether you want to open a new bank account or send money to another account, digitization could offer seamless access to different financial services. The lower costs and ability to scale efficiencies with the digitization of financial services could improve the accessibility of financial services. As a result, fintech would have more users with the flexibility to access their desired financial services.
The discussions on “is fintech the future of finance” also draws attention to the assurance of transparency with digital trials. Users can have confidence in digital financial services, transactions, and systems owing to the facility of a data trail with digital processes. Fintech can help in the effective reduction of information asymmetries alongside enabling organizations to develop a better understanding of their customers. As a matter of fact, one of the primary highlights of the significance of fintech refers to the disruptive changes in the facility of financial services alongside the experience of customers with financial services.
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What Will Drive the Future of Fintech?
The constant rise in popularity of fintech has become one of the prominent highlights in discussions on tech. Innovation has become one of the most vital aspects of financial services, with digital payments gaining the most traction. The equation between fintech and the future of finance also calls for attention to the important drivers of financial innovation.
A major share of payments worldwide features non-bank mobile wallets alongside other markets, card-based systems, and digital bank accounts. The total value of fintech investments throughout the world has been increasing substantially, with almost $10 billion in 2013, which reached almost $122 billion in 2020. Within the first half of 2021, the investments in fintech reached almost $98 billion, indicating the possibilities for driving the future of fintech.
The discussions on “What is the role of fintech in finance?” would also emphasize the important factors which drive innovation. What will the future of fintech develop on? Here are some of the essential drivers of innovation for fintech.
- Technological advancements have served a crucial role in our approaches to addressing different activities in everyday life. Many technologies such as AI, IoT, cloud computing, and blockchain have been working as top drivers for fintech organizations.
- Another important aspect regarding fintech and financial inclusion refers to the changes in consumer behavior. Gen Z consumers follow different ways to access financial services, and traditional financial systems need to keep pace with the change. Technology-driven financial services are important for the entry of critical players in the market.
- Improved access to information by leveraging analytics, cloud computing, and artificial intelligence could also fuel innovative advancements in fintech. Financial service providers could use these technologies for visualizing and adjusting to new trends in the market.
- One of the important highlights about the future of fintech and banking would also point to the effective lowering of barriers to entry. Advancements in technology have reduced barriers to accessing financial services, thereby opening up new opportunities for startups. The reduced friction in the domain of fintech also drives formidable growth in investments in the fintech sector.
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Technologies for the Future of Finance
Technological advancements have been the keyword for fuelling the growth of finance. Innovation is obviously a critical requirement for driving fintech forward. However, you need the foundation of technologies on which you can build your understanding of the future of fintech. Here are the important technologies which would support fintech development alongside shaping up the competitive landscape of fintech.
The value of artificial intelligence is often misconstrued on many occasions, primarily due to unrealistic assumptions. However, AI is an important aspect for answering “is fintech the future of finance” with the power of value creation. AI is one of the integral elements in the fintech landscape, with capacities to generate almost $1 trillion in additional value for the banking sector annually.
Banks and financial service organizations would rely on AI to obtain a competitive advantage over emerging technology firms. AI could help in the machine-based identification of elements, semantic representation of data, and analytics combined with better privacy safeguards.
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The next important technology which could push fintech forward in the future is blockchain technology. Distributed ledger technology could provide the value benefit of documenting data throughout multiple data repositories. Data about transactions are recorded and shared among different nodes to maintain consensus about transactions in the network.
Blockchain could offer a credible explanation about the potential of fintech and the future of finance with its distinct traits such as decentralization, immutability, and security. Blockchain technology also provides the assurance of cryptographic safeguards for your data, thereby reducing the risks. At the same time, decentralized finance, or DeFi, has evolved on the foundations of blockchain technology.
Blockchain technology introduced significant disruption in the traditional financial services ecosystem. It brought new entrants such as smart contracts, distributed data storage and exchange, and zero-knowledge proof security. Blockchain has facilitated the foundation for many promising fintech innovations, such as digital assets, cryptocurrencies, crypto wallets, and non-fungible tokens.
Traditional stakeholders, such as institutional investors, are seeking blockchain-based digital assets for diversifying their portfolios. For example, the Total Value Locked in DeFi protocols is almost $2.1 trillion. On top of it, the digital asset exchanges successfully achieved around $15 billion in terms of revenue in 2021.
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Cloud computing will also be one of the important drivers of the potential of the future of fintech and banking as the transformation of financial services becomes more prominent. According to research by McKinsey, cloud technology would account for earning more than $1 trillion throughout the top 500 companies in the world. Cloud computing can provide better efficiency with migrated application development alongside infrastructure cost efficiency.
Cloud computing could help in enhancing platform integrity by offering automated, integrated security controls and processes. Financial institutions need to take note of cloud computing models and trends to stay ahead of the competition. Some of the prominent trends in cloud computing that would affect the future of fintech include edge computing, cloud containers, and integration between AI and cloud computing.
Internet of Things
The important highlight of fintech and its future would refer to the growth of new technologies such as the Internet of Things or IoT. People are gradually embracing IoT, alongside imposing a layered impact on the domain of financial services. The Internet of Things could help to fuel the rise of perception and smart sensor systems alongside application and operations support.
It could also open up the roads for wireless communication networks to improve financial services. The answers to “What is the role of fintech in finance?” would also draw attention to potential applications of IoT for addressing the environmental, social, and corporate governance implications.
Another notable implication associated with IoT as a component of fintech refers to the accurate determination of risk. At the same time, it could also encourage customer engagement alongside speeding up and simplifying claims and underwriting processes. The insurance sector could benefit the most from IoT, especially for vehicle tracking and assessment of driver behavior in the case of auto insurance services.
IoT could also support banking by introducing vital improvements in inventory and property financing. Interestingly, the combination of blockchain with IoT could enhance risk management through the validation of matches between real-world transactions and accounting records.
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Risks and Future of Fintech
The outline of important factors driving the growth of fintech shows a promising picture for the future of fintech. However, the impact of fintech on the future of finance is an ambiguous concept. The discussions on fintech and the future of finance should also reflect on risks associated with fintech. For example, the market concentration of DeFi and crypto solutions could need rebalancing.
At the same time, concentration could drive a favorable effect on price and quality alongside driving beneficial competition. The novelty of business models also creates potential customer protection risks alongside a lack of financial literacy and a clear definition of responsibilities for fintech organizations. While regulatory supervision has been developing gradually for the whole fintech landscape, it needs to span across every aspect of fintech.
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The future of fintech relies on the technologies which have established its foundation. While cloud, AI, and machine learning could offer the infrastructure required for the future of banking and financial services, blockchain could offer a new philosophy for defining financial services. The explanation for fintech and financial inclusion with lower barriers to entry in the fintech ecosystem showcases how it will impact finance in the future. Learn more about DeFi and how it could influence the future course for finance and technology now.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!