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How to Prepare for Future Trends in Fintech Innovation
Financial services have been innovating and evolving for centuries, with technology as a key driver of change.
Fintech, which stands for financial technology,1 uses innovation to deliver and design financial services. As an emerging industry, it holds a wealth of potential. Today, the fintech industry offers countless opportunities for financial entrepreneurs.
Over the years, fintech has moved from affecting only technology firms and financial products to disrupting retail, online marketplaces, digital marketing, telematics, small and midsize businesses, and more.2
In 2020, the worldwide value of fintech investments was about $105 billion USD.3 These investments are being poured into various areas of the banking and financial industry, whether that’s into personal finance or in an effort to disrupt traditional services.
Although the areas of investment may be different, what has been made abundantly clear through the fintech revolution is that society is not pleased with the existing financial system.
As a financial professional and business decision-maker, you need the skills to understand and respond to an evolving financial services industry. The FinTech online short course from Harvard’s VPAL, in association with HarvardX, prepares you to critically assess the future of FinTech and the technologies that will have a lasting impact. Learn more about the course and meet past students here, many of whom come from industry-leading companies, including Equifax, Alpine Bank, and Visa Inc.
Fintech trends and evolutions can be split into three categories: the future of money, marketplaces, and infrastructure.
The fintech future of money
Have you heard of the concept of ‘invisible banking’? In 2017, Amazon made a plan to launch a cashierless convenience store to the public. Customers were able to go throughout the store, grabbing the items they wanted, and as they exited, they would be automatically charged for their goods. After a 14-month trial, the prototype store ‘Amazon Go’ opened to the public.4
Customers simply had to download the Amazon Go app on their phone and scan their unique code to be let inside the store. Through sensors and cameras lining the store’s ceiling, customers are charged on the app for every item they take out of the store. The sensors even keep track of what you put back on the shelves, in case you happen to change your mind. In just a short time, the grab-and-go format has thrived. Now, Amazon is teaming up with Starbucks for Starbucks Pickup, built upon the same premise.5
Amazon is just one example of how retail is changing the way we think about money and transactions. Another is digital currencies, such as cryptocurrencies, which have caused major disruption to industries far beyond finance. Compared to this alternative form of money, the current financial model customers use to transfer money is quickly becoming outdated and inefficient.
The uprising of Bitcoin, Ethereum, and mobile payment services like Venmo provides the opportunity to create new global payment networks that are secure, quick, transparent, and easy to use – ultimately providing better service for all. These innovations have begun to lay a new foundation for money and banking.
The fintech future of markets
The fintech revolution has led to an emergence of new marketplaces like financial services for the unbanked. One trend is new payment platforms, specifically relating to mobile banking. This has opened the door for people who previously did not have access to financial services, in emerging markets, in particular.6
Fintech and small and medium-sized enterprises (SME)
One of the biggest issues small businesses face is a lack of funding or capital. According to the International Financial Corporation, there is presently a funding gap of more than $5.2 trillion a year for SMEs in emerging markets.7
But funding aside, the challenge of inaccessible banking still needs to be addressed. Around the world, there are 1.7 billion people who don’t have access to a bank account.8 Fintech is able to bridge this gap.
Fintech and crowdfunding
A second emerging marketplace with the potential to aid SMEs is crowdfunding or peer-to-peer lending. These fintech platforms offer the opportunity to further financial inclusion on a global scale. Crowdfunding can be described as the method of financing (an SME, in this case) by gathering small amounts of donations from a large number of willing individuals or legal entities.
Crowdfunding is interesting in that it bypasses traditional financial third parties by using online web-based platforms to connect the potential SME with the funders – often through the use of their mobile device. The idea of joining people with money to those without money is not new. What differs is the use of fintech to make this process exceptionally easier and accessible to a much larger group of people.
The fintech future of infrastructure
The fintech revolution has radically changed the infrastructure of financial services. This infrastructure can be described as the system enabling transactions and the regulation of these movements. Banks are no longer the only ones in control of the movement of your money. Customers are now demanding that this become their role. Instead of simply maintaining the traditional financial infrastructure, it needs to be overhauled in order to keep up with the rapid changes, opportunities, and challenges brought on by fintech.
Older computing systems that haven’t been updated are specifically an issue for large banks that cannot simply update the infrastructure, but need to replace it, which can become a costly mission. That’s where fintech could help to transform and optimize the future of systems and payments.
How to identify and leverage fintech opportunities
Disruptive technology is, by definition, difficult to predict – it displaces established technology with groundbreaking innovation. But the future of fintech offers many opportunities for businesses, governments, and greater society. As you identify potential fintech opportunities, ask yourself these questions:
- Is there a gap in the market, or does an existing service require improvement to meet an industry need?
- Does the new technology improve its niche in the industry, or does it merely add bells and whistles that consumers and professionals don’t actually want?
- What kind of structural or regulatory changes are needed to support implementation of this fintech?
By asking these three questions, and looking for unique ways to meet an industry need, entrepreneurs and finance professionals can assess trends in their earliest stages, and leverage innovation to augment their own business strategies.
Learn more about fintech innovation and future trends with an online short course.
- 1 Kagan, J. (Aug, 2020). ‘Financial technology – fintech’. Retrieved from Investopedia.
- 2 Feyen, E., et al. (July, 2021). ‘Fintech and the digital transformation of financial services: ‘Implications for market structure and public policy’. Retrieved from BIS.
- 3 (Sep, 2021). ‘Value of investment in fintech worldwide in 2020, by region’. Retrieved from Statista.
- 4 Day, M. (Jan, 2018). ‘Amazon Go cashierless convenience store opens to the public in Seattle’. Retrieved from The Seattle Times.
- 5 (Nov, 2021). ‘Starbucks opens its first cashierless location in New York City, in collaboration with Amazon Go’. Retrieved from CBS News.
- 6 Chittock, L. (Oct, 2021). ‘Emerging markets leapfrog into digital banking’. Retrieved from Forbes.
- 7 (Nd). ‘Small and medium enterprises (SMEs) finance’. Retrieved from The World Bank. Accessed December 3, 2021.
- 8 (Jun, 2021). ‘World Bank: 1.7 billion people around the world don’t have bank accounts’. Retrieved from Yahoo!.