According to the report issued by KPMG, “In the first six months of 2018, global investment in fintech has hit $57.9B.”
Fintech has emerged as a powerful sector driven by the adoption of cutting-edge technologies and alternative finance. Most of us will agree, fintech is disruptive and is considered as the future of the finance industry. Since fintech emerged in the 21st century, there have been numerous factors driving fintech growth; the advancements in technology topping the list. We have identified top five factors that have contributed to the rise of fintech across the globe.
The rise of smartphone usage is amongst the top factors of boosting the technological advancements and enabling it for mass adoption. In addition to it, other factors that are playing a crucial role in the transformation are mentioned below:
- Identity confirmation technologies like biometric, face recognition, and iris scanning.
- Instant payments.
- Internet of things.
- Online KYC and digital signatures.
Technology is changing the way the finance industry operates and delivers services. The overall market is undergoing a major transformation leveraging new and cutting-edge technologies. This technological advancement has majorly driven the growth of fintech across the globe.
Huge Capital Funding
Fintech market activity has gained momentum worldwide in the current year. The global investment in the fintech industry has exceeded last year’s investment in total. In Europe, the investment in fintech companies has reached $26 billion with the UK leading the charge with over $16 billion in total fintech investment. With that much money being poured into the market, fintechs are in a position to put great resources into innovation.
The growing maturity of fintech industry has attracted several investors including banks, insurance and wealth management firms, and non-banking corporates. The companies have started recognizing the need to adopt fintech and are making huge investments in startups.
Digitalization of Financial Services
Traditionally, customers had to reach to their nearest bank for all their financial needs such as deposits, withdrawals, transfers, loans, and investments. With digitalization, the complete scenario has witnessed an overhaul.
Digitalization has changed how banks and financial organizations interact with customers and conduct their operations. Customers can now easily manage their bank accounts and investments through their mobile phones without needing to visit banks physically. The world of banking has been streamlined and efficient, putting control firmly in the hands of customers.
Government regulations have played a significant role in fintech growth and providing a supportive regulatory environment. For instance, the European Union’s PSD2 (Second Payment Service Directive) regulation allows customers to share their financial data with the help of secured third-party APIs for better financial services. PSD2 allows banks and fintech firms to collaborate and generate innovative products/services to foster fintech growth.
The Rise of Alternative Finance
The alternative finance market is showing no signs of slowing down, with a remarkable growth percentage of 43% in the UK. Alternative finance such as peer-to-peer lending, crowdfunding, and invoice trading has become popular in most parts of the world. They allow people to lend or invest via online platforms eliminating the need of a middleman.
Moreover, alternative finance comes as a boon to a majority of small business owners who do not meet the rules and regulations for bank loans. They can avoid the strict rules and regulations and obtain loans at affordable interest rates.
While the fintech industry is still in its early adoption stage, we believe it is well-positioned to witness long-term growth in the coming years. The changes will be more focused on digital lending (alternative finance) and open banking. Fintech growth will ultimately create outsized opportunities for firms and help empower them in the digital age.