The financial technology (fintech) industry has exploded in recent years, with some companies raising more money than some of the world’s largest banks. Many of the new companies are focused on consumer-oriented services, like robo-advisors, payment apps and peer-to-peer lending platforms, and they’re expanding access to finance by making it easier for consumers to bypass established banks and get loans and investment opportunities.
Fintechs are also driving change in traditional banking, which has been slow to adapt to the digital age. But now, even established players are starting to embrace fintech by either developing their own solutions or partnering with companies that can help them keep up with the fast-paced innovation.
This transformation has taken on a number of forms, which McKinsey categorizes as the four D’s: decentralization, democratization, disintermediation and disruption. Some fintechs take a decentralization approach by breaking up traditional banking services into their individual offerings, such as mortgages, investments and business loans. This enables them to offer more options and lower costs.
For example, mortgage fintech companies can use data and algorithms to provide more customized financing for home buyers than traditional lenders can. Similarly, investment fintech companies can find new ways to invest funds based on their clients’ unique needs and goals. And insurance fintech companies can use algorithms, satellite imagery and other data to make more accurate assessments of risk and streamline the application process.
Others democratize access to finance by bypassing the traditional banking system altogether. For instance, P2P lending platforms like Lending Club connect borrowers and lenders directly, eliminating the need for a bank to act as a middleman. This can be especially impactful in emerging markets, where traditional financial systems may not be as well developed.
And still others disrupt the status quo by bringing new capabilities to consumers that would have been impossible without advances in technology. For example, robo-advisors can use data and algorithms to provide investors with financial planning and investment advice without the cost of human advisers. And savings and investing apps can use predictive behavioral analytics to guide users toward better financial habits.
In the future, we can expect more innovations that will improve the quality of financial services and expand access to them. For example, new types of artificial intelligence will be able to predict the likelihood that a customer will pay their debts on time, while learning apps could make users more mindful about their spending and saving habits.
These advancements will require cooperation and collaboration among public institutions, incumbents and upstarts to unlock the full potential of fintech. To do so, Europe must create the right enabling structures and mechanisms, while also preparing for an economy that will be powered by a new generation of digitally-native consumers who demand more from their finances than ever before.https://greyjournal.net/hustle/work-tech/navigating-the-new-challenges-for-fintech-startups-in-a-changing-economic-landscape/
