Over the past decade, FinTech rose from obscurity to be one of the top buzzwords in the financial world. Although we hear the term being thrown around but many are still unsure what Fintech really is. Who can blame them? The explanations sound pretty complicated!
This is an interesting space. We want to do our part by providing a simple explanation of the term – from the perspective of a Malaysian Fintech.
Great! But first, what is FinTech? 🚀
FinTech is a combination of the words Finance and Technology. FinTech companies provide financial services with the integration of technology to revolutionize finance. Today, nearly every financial sector is embracing this new wave.
But banks use technology too, right? 🏦
Banks do use technology too. But unlike a Bank, FinTech companies have several key differences:
- FinTech companies rarely encounter legacy issues. They are usually up to date with their operating systems or applications.
- FinTech services are able to serve the current banking customer base and the unbanked.
- Moreover, by utilizing technology, Fintech companies are able to offer more tailored services. Think personalization!
- Lastly, FinTech services are accessible anywhere because their services are largely digital!
Okay, FinTech sounds cool and all, but why is it important? 🧐
For the longest time, there were no alternatives to banks. This has left them in a position of monopoly over customers. This monopoly has made finance unfair with high costs, hidden fees and poor customer experience.
After the Global Financial Crisis of 2008 and the collapse of the Lehman Brothers, people started growing discontent with the banking industry. The trust between the people and banks was crumbling sparked by the seemingly unlimited, uncontrolled greed. This created a vacuum, accelerating the need for alternative services. This led to the rapid development of FinTech.
FinTech companies are learning from the mistakes of traditional banks:
- Reduce internal bureaucracy.
- Allow for greater innovation and experimentation.
- Enhance the customer experience.
- Making the service accessible to all anywhere, anytime.
Wait, FinTech is regulated? 🙉
Yes, it is.
FinTechs are regulated to ensure proper conduct, proper verification of customers and enhanced data protection. The goal is to ensure all financial activities are in line with current regulation standards to combat things like money laundering and terrorism financing.
Why would Central Banks be receptive towards FinTech? 🚦
This is a great question to ask!
Competition drives innovation, and innovation is the way forward for any economy. Central Banks know this for a fact, the FinTech industry is an industry for the future.
To avoid being left behind, Central Banks and Governments from around the world developed initiatives to study, nurture and regulate this nascent industry. Just look at what the Australian Treasury has to say here.
What will the future of finance be like? 🇱🇷
Today, there are a myriad of FinTech companies revolutionizing different segments of finance. Examples are cross-border remittances, fundraising, capital management, real estate, insurance, and so on.
Innovation in the FinTech industry is happening every day, and who knows? The next best thing may be on its way.
One thing is for sure:
Gone are the days where traditional financial institutions can comfort themselves that they were the only ones who had skin in the game.
What are your thoughts on the Fintech Revolution? Let us know in the comments below!
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