The Rise Of Fintech Startups And Financial Innovation
In the last few years, fintech startups or financial technology startups have rapidly gained importance and have become an important factor driving the force in the financial services industry. Technological advancements are utilised by the fintech startups to easily deliver their services to their customers by being more affordable, convenient and quick compared to the institutions providing traditional services. These startups are playing havoc with the industry of traditional financial services and transforming how customers can communicate with financial services.
Fintech businesses or startups can innovate and offer their customers new services and products, which conventional financial institutions can not provide as they cannot be innovative. These startups provide their customers with different services, such as digital wallets, peer-to-peer lending, robo-advisory services and mobile payments with the help of technology. By utilising these digitised technological advancements in fintech, startups outperform the services offered by traditional financial services in affordability, accessibility and usability.
The important advantages of fintech startups are flexibility and agility. These startup businesses have a reduced number of regulatory restrictions and overhead expenses as compared to the financial institutions which were established earlier. This aids them in innovating and creating novel services and products quickly and thus responding to shifts in the demands of the customer and the market trends. These startups also come together and work with traditional financial institutions to achieve a larger base of consumers.
Moreover, these businesses can utilise data and analytics to enhance and customise their services, which is another advantage. These businesses provide their services to their customers depending on their specific tastes and requirements with the help of utilising data of the customers. As a result, the company gets the loyalty and satisfaction of the customers from this personalisation. Additionally, fintech firms use data analytics to establish a financial system which is more secure by improving the management of risk and prevention of fraud.
Fintech firms have largely expanded in numbers, due to which there has been a lot of competition in the financial services market. These firms pressurise the established financial institutions to make themselves more creative and innovative and improve their products and services. Some financial institutions are collaborating with financial businesses, while some are financing their own projects to provide new services to their customers.
Rise of Innovative Fintech Startups
The world has been made into a smaller place as internet usage has been increasing extensively, having the power for a common occurrence, making individuals smarter and providing information in a more digitised way. Still, finance has stayed the same. As the world is developing into a more digitised and innovative world, individuals are becoming more knowledgeable in the financial sector and are utilising modernised business models like peer funding and crowdfunding, which are considered some highly utilised innovative solutions by the fintech startups to solve the financial problems in the modern times. Hence, it provides a sense to the world that fintech firms are rising with financial innovations. Being highly innovative, fintech startups can agitate the financial sector about operation agility, speed, total users and the total reach of users.
Examples of Companies With Fintech Innovation
Fintech startups have gained popularity in recent years with the help of peer-to-peer lending markets and mobile payments, bringing a major wave in the financial market. Fintech startups are working on creativity and innovations in their businesses, redefining the financial sector’s potentiality.
- Dollar Passports, an instance of the financial startup, was established to develop a basic change in how businesses, governments and consumers connect with personal finances and money. The common goal of most payment startups focuses on transferring money into accounts. Dollar Passport wanted to transform how the company uses money by allowing employees to receive a sum for each dollar they earn, which will be planned for saving for the employee’s retirement.
- Qiwi is another example of a fintech startup which promises the accessibility of mobile verification investments and the convenience of the services of Citi customers. Customers residing in crisis-ridden countries such as Honduras and Nicaragua pay premiums of smaller amounts for the accounts at the banks at high risk. Also, these startups offer help to people by lending them money who need help to borrow money from conventional financial institutions.
Driving Factors In The Growth Of Fintech Startups
The fintech startups have emerged and expanded rapidly in the last few years because of the following factors.
- Advancing digital technologies – The vast development of software and hardware and the expanding confluence of information and communication technologies in the last few years have been considered important for the advent of fintech firms. These rapid technological developments have helped businesses to implement organisational forms and new models to disrupt or emerge in some travel entertainment or financial service industries. Additionally, digital technologies such as artificial intelligence, blockchain, 5G, the internet of things, and development in data storage, management and big data, which are emerging gradually, provide businesses with newer opportunities and possibilities to change how they were operating their financial sector earlier. Digital technology has been rising exponentially, which has helped financial companies to deliver services quickly and has helped in offering cost-effective services as customers find the experiences of digital banking more convenient compared to conventional banks. The world is observing changes in the financial services industry as there is an emergence of mobile banking, digital wallets and several other applications used in financial services. Users use digital wallets to purchase their physical items, pay bills, pay for taxis or parking, make denotations and send money to someone.
- Transforming the expectations and needs of the customers – As the world is adopting technological advancements, the customers’ requirements and needs have also modified with this. They are slowly becoming more autonomous for fundamental transactions and more demanding for the role of banks for advanced transactions. Moreover, customers are becoming more active, informed, empowered and connected by utilising novel social media and search tools. In recent times, customers are increasingly shifting towards purchasing products from online markets, and digital touchpoints have been considered important in the journey of customers, which ultimately affects online and offline sales. Additionally, this financial era has provided financial services 24/7 rather than only for restricted banking hours. Several banks in the world still provide their customers with costly, old-fashioned and inconvenient financial services, while financial startups take up the chance of offering certain important functions of the conventional banks based on innovation and technology, which is an important source of competitive advantage. The customer’s changing needs are the real disruptors, as these are the basics of the digital transformation in the financial sector industry.
- Effect of COVID-19 – The epidemic arrived and rapidly spread into the world for which no one was ready, and due to this, the global economy was affected severely. The pandemic started from an issue of global health crisis and gradually became an issue for the economic crisis as the markets across borders were getting economic shocks. Because of the emergence of COVID-19, digitalisation was required to be accelerated in many forms in people’s daily lives as physical presence was lacking the customary business. People working around the globe have to start working from home as the pandemic is spreading. This health crisis also forced many businesses to operate online when the operations of the businesses were locked. This ultimately made the customers turn towards the digital world to utilise their everyday transactions and also made them accept e-commerce extensively. Furthermore, it has also resulted in the mass upgradation of individual digitised knowledge from various social and age groups worldwide.
- Lowered barriers for market entry – The important factor which permitted financial startups to enter the financial services market is reduced regulations for the financial services offered by non-banks. As the banks were facing strict conditions for lending and enhanced capital requirements, the 2008 crisis made it difficult for the smaller firms, business owners and individuals to secure their credits, resulting in an unfulfilled demand for financial services as banks were busy in complying with the regulations while fintech startups were exponentially enhancing their company with the utilisation of technological advancements to offer their customers low costs in innovative ways. Furthermore, fintech startups confide the offerings of financial services with the help of innovative technologies as regulatory constraints somewhat impact them and can take more risks than conventional banks. Fintech businesses utilise a light regulatory requirement, which helps adapt an altering business and make the technological environment easier than other banks. The ease of regulatory framework for the innovative providers of financial services lowers the barriers to entering the market for fintech startups. In addition, technological advancements such as cloud infrastructure, hardware and software have significantly developed the traditional platforms of fintech companies with small teams, making entrants with lower funding participate in the competition.
- Expanding investments in the fintech sector – After the financial crisis of 2008, technological firms and financial institutions increased their investments in the fintech firms’ innovations. To develop the fintech firms and make innovation, external funding has been adopted with an increasing number worldwide. Moreover, the increased investment in fintech startup companies leads to a growing number of activities and companies in the financial services market. Globally, the financial market is driven by the growing need of customers for mobile banking and e-commerce platforms, which provide an environment which is more user-friendly for managing financial transactions.
Fintech startups are identified as the drivers of innovation through which the fields of financial services are forecasted to portray an important role in the financial services industry. Technological advancements and digital transformation have helped many financial firms effectively address customers’ needs at a reduced cost. Entrepreneurs in the fintech startups are transforming the financial services sector by offering affordable, creative and convenient services. The capability of utilising agility, technology and data analytics to improvise and control the services is the key to the troublemaking potential. The expansion of financial technology in startups significantly shows a shift in interactions with financial services.
Moreover, to compete, traditional banks must keep themselves up with the pace of innovation. This is so because the fintech firms are growing faster and are creating higher revenue and higher expectations of success. Adopting advanced technological changes in the banking sector is recognised as a basic differentiator against competitors and an important element for financial sustainability.
Author Bio: Mark Edmonds is a carefully prepared finance expert and a valuable contributor to the field. As a committed proficient at Academic Assignments, eminent for conveying top-level finance assignment help to students, Mark’s expertise has essentially influenced the academic landscape. Enthusiastically for financial innovation and a sharp comprehension of fintech new companies, Mark’s experiences are gotten from long stretches of involvement as well as from a pledge to sharing information, helping students succeed in their financial studies, and molding the future of finance.