Financial Technology (more commonly known as FinTech) has revolutionised the world as we see it. Starting from centuries ago when the technology to simply wire money through telegrams was initially introduced, consumers have been benefiting from the advancements in financial technology in many ways. With great leaps and bounds in financial technology in recent years, the global FinTech market was valued at over USD 5 trillion in 2019 (source: Research and Markets, 2020) and has been steeply growing ever since with significant growth seen in all areas of digital financial services.
What is FinTech?
FinTech is, to put it very simply, the use of technology to not only improve delivery of any financial service, but also as the foundation on which financial services are built. It encompasses everything from mobile p banking and digital wallets to online loans and cryptocurrency. FinTech is certainly not limited to banks and indeed, could disrupt the entire banking industry as we know it. While historically, FinTech has been geared towards improving banking systems, recent times have seen a shift towards more consumer-oriented and self-service styles of financial technology.
Global Growth of FinTech
Developments in FinTech have facilitated affordable access to banks and financial services, aiding in not only economic growth but also reduction in poverty levels. By reducing the cost of reaching larger numbers of consumers and providing better customer service through automated support, FinTech has been able to largely bridge the gaps between banks and customers during the last few decades. In the past, the banking industry suffered from a huge power imbalance, with customers left very much at the mercy of big banks, especially poorer customers. Today, customers from all walks of life are able to open accounts, view bank records, transfer funds, make investments and much more with just a few easy taps on a screen due to the progression of FinTech.
FinTech in Sri Lanka
Even though research has shown that the growth of FinTech is expected to boom in developing nations especially since the Covid-19 pandemic that forced businesses to undergo digital transformations, the FinTech ecosystem in Sri Lanka is still very much lagging behind the rest of the world. Although Sri Lanka definitely possesses the required technological skills within the country, banks have a strong track record of not easily adapting to new methods of doing things, especially when it comes to money. However, the consumers (especially younger generations) are well-versed in global financial technology and the demand for similar services in Sri Lanka is growing, and banks are no longer able to ignore the power of the consumers.
For example, despite banks making admirable headway in digitising most of their functions, the lending divisions have not seen similar progress despite other service providers of online loans seeing a significant increase in demand and customers. Due to easy application and hassle-free online repayments, the popularity of online loans has skyrocketed in recent times. Especially with the Covid-19 pandemic, more and more consumers have understood that FinTech allows them to access financial services previously not available to them.
Challenges and Barriers for Growth
While FinTech is expectedly to keep growing rapidly, there are a number of challenges that need to be overcome to see complete global adoption of financial services facilitated by financial technology.
FinTech companies and ventures have to guarantee absolute security of their customers’ personal and financial data. As all information is stored digitally, these systems are prime targets for hackers. A data breach could potentially see millions of dollars or rupees lost in the blink of an eye, as well as customers’ confidential personal data (wealth, loans, assets, sources of income etc.)
The banking and finance industry is tightly regulated by global and governmental bodies. Any developments in financial technology (such as online loans) are heavily scrutinised by regulators who do more in the way of preventing innovation in the name of protecting pre-existing financial systems, large players and customers.
FinTech development requires immense investment due to the high skill sets and resources required. With slower adoption rates, the return on investment will take longer and might not be financially viable at times.
As FinTech possesses the power of boosting economies and financial development, it is a sphere with unlimited potential and definitely a space that should be watched closely. While in first world nations, FinTech has created more opportunities for busy people to engage in financial transactions with extreme ease, FinTech has made a far more powerful impact in developing nations where systemic barriers prevented most people from even opening a bank account. By facilitating proper banking transactions, FinTech has not only allowed poorer people to better manage their income and earn interests, but has also helped entire economies to prosper. For example, companies like OnCredit.lk are providing a helping hand to all consumers in the country even though there is a threat of pandemic whilst other big financial institutions have halted.
Read here: How FinTech is helping Consumers in this Age & Will Banks be a thing of yesterday?