In 2014, fintech attracted approximately $12 billion investments, tripling the amount that was raised in 2013. In 2013, the figure increased exponentially to $30 billion. In 2016, many believe fintech is continuing to gain momentum. Consequently, we need to ask ourselves: What is the impact of fintech innovations within markets and marketplaces?
Traditional banks are losing market share and revenue to fintech companies. Although some fintech companies are seen as potential partners, many more are seen as challengers to banks. Customers are realizing that these companies provide an easier transactional process. For instance, Fintech companies such as PayPal are providing technology-based services (loans and payments) that reduce overall difficulty in the process of transaction. This process is highly looked-for by customers, particularly young ones. It is very obvious that, millennials prefer to go for alternative solutions that reduce burden and increase speed. Customers need better person-to-person payments and mobile deposit capabilities—areas where fintech startups have a competitive edge.
Greater competition leads to more innovation, increased choice for consumers and lower prices. Fintech sector is evolving faster and new and cheaper products are being unveiled in the market as the start-ups entering the financial market continue to grow.
Fintech innovation has resulted to more products, services and efficiency in the market and marketplaces. It allows people to conduct transactions via their tablets or mobile phones, improving customer experience and efficiency. The new technology ability to capture data, in real time, is revolutionizing how businesses are carried out, how products and services are received in the market, and how the consumer get involved in this process.
Fintech innovation gives solutions that are efficient at lower scale, benefiting small businesses and providing them with better access to more varied funding options. Innovative fintech products are better tailored to the small business needs. These include merchant and e-commerce finance, peer-to-peer lending, online supply chain finance, online trade finance and invoice finance.
Fintech innovations have also reduced information asymmetry in the marketplace. This has helped in mitigating risk and promoting more efficient allocation of scarce resources. Consequently, the ability to match investors, burrowers and lenders has improved, providing a more level playing ground that enables retail investors to have a better participation in the market. In addition, fintech intermediaries help in bringing additional liquidity to the market.
From lending viewpoint, Fintech companies are focusing on consumer and small business loans. For example, CommonBond is a student-lending platform that was funded by a former Citigroup manager, Fintech lenders approve loans faster through digital platforms like this.
The fintech innovation is also finding its way into the insurance market, enabling growth of new products and services. Technology creates the potential for insurance firms to serve low income consumers. Technological advancements in data analytics, psychometric testing, biometric identification, and the rise of mobile are now being used in the insurance sector, increasing the range of consumers to whom it is cost-effective to supply insurance products and allowing the establishment of new, personalized insurance products.
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