FinTech: Why it simply had to happen
The FinTech sector is hot and rapidly changing the world as we speak. This trendy word has become a synonym of not only radical and disruptive changes re-shaping the financial system, but also a symbol for startups challenging the existing status quorepresented by financial institutions.
There is a lot of talk and articles about FinTech being a definition of innovation that leads to evolutionary or even revolutionary changes. Startups focusing on financial markets have spotted opportunities to provide services differently, or to be more accurate: to provide services way BETTER than anyone before.
Let’s think about this for a second. In a lot of cases the idea for a challenger brand begins when a person (who later becomes a startup founder) gets so upset and frustrated with the existing service (or lack of it) and decides to take things into his/hers hands to actually influence or change the status quo.
How many years have existing institutions been enjoying the privilege of having some type of monopoly in providing certain types of financial services? Such a position has created both ignorance and arrogance towards clients, which in the end leads to a deterioration of the relationship, sub-standard service and lack of technical development.
Someone once humorously described such behavior as ‘FDH’ an acronym for Fat, Dumb and Happy describing how the “big guys” felt on the market, which they owned or thought they owned. That is the comfort zone of the worst kind because the most important thing is being forgotten: the clients.
In the race to increase shareholder value or show short term growth in their results these financial institutions where pushing the boundaries on so many levels that in fact two things have happened: one, they did achieve great financial results in the short period of time. Secondly, they created an alarming amount of people that were totally dissatisfied with the service or/and products.
This widespread customer dissatisfaction with the current situation made entrepreneurs sit up and take notice. It’s was and still is a great opportunity for smart startups founders (mostly backed by deep pockets investors) to create disruptive technology services that will re-shape the market and business models even further.
FinTech gets born
FinTech startups analyse in detail the current financial services model and change and improve almost each and every element of it. They make it better, more efficient, more friendly and, most importantly of all – less expensive everyone.
Innovation fuels the competition
If you have ever owned or participated in a startup you know how difficult it is to get a small operational loan from any bank, even the one that serves your daily business. Banks are not interested in lending small amounts of money to startups and there we go – an opportunity arises for newly establish FinTech companies to offer small or medium loans to founders almost on the spot. Same thing applies for insurances.
Paying tons of money for a wire? Not any more! TransferWise.com is here! Job done.
Why do you have to wait a few days to have money wired from one account to the other if there are only digits that change on both sides of the equation without any physical movement of money? Why does the exchange rate always work to your disadvantage? Why do bank commissions cost more and more and new fees appear constantly? Soon, disruptive alternative solutions from FinTech startups will fix these customer issues and the traditional banks will have to adapt or risk losing customers and market share.
Don’t misunderstand me; I am not advocating FinTech as a magic cure for everything that has worked badly before. But we need to acknowledge its disruptive nature on the markets. Without the advent of the FinTech revolution what motivation would the existing financial institutions have to try to change something? The answer is simple: None.
“The force awakens”
Bank wires, exchange rates, insurances, crypto currencies and last but not least payments processing – FinTech startups have already touched almost every part of the financial system.
Online shops can now integrate payment processing platforms and process transactions in next to no time because companies like Stripe, Braintree or SecurionPay exists. Thanks to them online shops can experience paperless set ups, transparent pricing, simple and instant.
New FinTech companies such as these have started challenging existing providers and taking them into territories outside their comfort zone, forcing them to ask “what do we do now”?
Learn, adapt or…call for help
Lets answer this question first: Is FinTech good or evil?
Well, I cannot answer this question in the name of everyone but in my humble opinion it is exactly what is needed to prove that the disruptive ‘David vs Goliath’ model still works equally well today as it did in ancient times. The established big companies still have more money and more stable fundamentals but they lack the flexibility, fast decision-making and the agility of the FinTech start-ups to affect change and turn dissatisfied customers into satisfied ones.
FinTech brings not only fresh air into mature industries but thanks to its innovative approach and very fast spread it forces the existing financial system status quo to change and adapt.
We can actually see the financial world changing in front of our eyes. Banks are trying to improve their services and change their policies at least to some extent to address these new challenges. Even if they cannot match the speed or technology of the new breed of FinTech companies they are at least trying to improve certain aspects of their operations and look into areas they previously neglected or ignored before such as better support or lower fees, which is a positive for both the market and consumers.
Payment processing is experiencing changes as well. The FinTech pioneers have reinvented the way it’s being done. They now deliver technology and payment experiences in a way that is impossible to match by existing players which have been on the market for the last 15 years or longer.
Governments of some countries like Ireland or UK support these disruptive market changes in spite of being pressured for more FinTech “regulation “ (read: they want a piece of the action too). Such FinTech “regulation” lobbying is usually conducted by financial institutions that are more interested in maintaining the convenient status quo than trying to adapt their businesses to a fast changing market.
For now, one thing is certain: at this point there is no single FinTech startup that can offer a complete alternative to the existing financial/banking system. Will this ever happen? I guess we will have to wait and see.
However, the changes brought about by FinTech companies have already made a hugely positive impact on how financial services are being delivered to us, the customers.
That is why I trust in FinTech. It’s a good thing.
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