Innovation in the financial sector can occur through different means. The exploration of financial technology, or fintech, is one such example. The main purpose of this sub-industry is to improve the delivery of financial services.
Why Fintech Matters
The current financial infrastructure and ecosystem has been in place for some time now. Without further innovation and improvements, the industry risks stagnation. For consumers and corporations, that is not something to look forward to. Stagnation often results in a decline or downfall.
Fintech is the global joint effort designed to stave off financial stagnation. It encompasses virtually all financial activities known today, as well as those yet to come in the future. With a strong focus on new applications, processes, and products, there is an unlimited amount of sue cases to explore.
The Pillars of Focus
Over the years, the fintech industry has exposed those pillars of finance that need innovation and streamlining. This list spans insurance, trading, risk management, and general banking services. All of these products and services are also entwined closely. Even the smallest change in either of these facts can trigger a cascading effect.
As this new industry attempts to “fix” the financial industry, there is an influx of new service providers. Most of these companies collaborate with banks or insurers to cut through any regulatory red tape heading their way.
This collaboration serves another purpose. Fintech has introduced the launch of open APIs and open banking standards. After gaining support from the European Payment Services Directive, the industry was legitimized in quick succession.
Key Examples of Innovation
As the industry grows and matures, several new services and products have become apparent. One intriguing example is the launch of robo-advisers. These services act as automated financial advisers which offer investment management solutions to customers. There is little to no human involvement in this process, allowing financial institutions to further cut costs and increase overall profitability.
Another major change comes in the form of social trading. As the name suggests, these networks allow anyone to look at how experts trade in specific markets. They can then copy those strategies or use it as a template to build their own methods. Considering how these platforms require virtually no financial market knowledge, they can become major hubs for novice enthusiasts in the years to come.
Investments are Ramping up
Exploring new opportunities in fintech is not cheap. Thankfully, the global investment in this industry continues to increase. Ten years ago, VCs and other investors were willing to part with $830m to fund the development of fintech ventures. By 2015, that figure had already increased to over $22bn.
In 2018, the US fintech investments alone accounted for $52.5bn. The global investments account for $111.8bn, confirming the United States is a big player in this new industry. Despite these impressive numbers, there was a worrisome decline in “deal volume” during the second half of 2018. It remains unclear whether that aspect has improved throughout 2019.