| By Ravpreet Kaurin Startup Essentials|Reader DisclosureDisclosure: Our content is reader-supported. This means we may earn a commission if you click on some of our links.
We are advancing with a sway in the twenty-first century, where we have developed AI tools, robots, and whatnot. But, the financial problems still seem like they need to be resolved at the ground level.
They still revolve around basic problems like no safety while making the payment, underbanked or unbanked areas, no financial literacy, slow process, long waiting lines, choosing a policy without knowledge, and so on.
But, with the growing problems, this problem gave rise to the Fintech companies that are solving these and many other financial industry issues.
The Fintech companies are growing with a Compound Annual Growth Rate (CAGR) of 25.18%, and the global fintech market is worth approximately $165.17 billion in 2023. This means we are already working harder each day to get better with the finances.
Fintech or financial technology, refers to the application of new technologies to compete with traditional financial methods and revolutionise the delivery and usage of financial services.
It involves using specialised software, algorithms, and innovative approaches on computers and smartphones to streamline financial operations for businesses, individuals, and consumers.
The “ABCD” of fintech, which comprises artificial intelligence, blockchain, cloud computing, and big data, represents the driving forces behind these advancements. By leveraging fintech, companies aim to enhance efficiency, automate processes, and provide more accessible and personalised financial products and services to their users to meet the evolving needs of these modern times.
One of the most significant impacts that Fintech companies are making is promoting financial inclusion. As they offer digital and mobile-based financial services, they have opened up opportunities for people who live in unbanked and underbanked areas to access essential financial tools and services while breaking traditional barriers.
Finance Industry Challenges
The financial industry faces a lot of challenges which are evident to the users and industry and which are affecting the digitisation and the growth of financial institutes. Some of the major challenges include:
Not Meeting The Compliance Standard
Finance companies operate in a heavily regulated environment, and failure to comply with financial regulations and industry standards can lead to severe consequences.
For example, even a single lag or fault in the system can result in legal penalties and reputational damage.
Data Privacy Concerns
Finance platforms have sensitive financial and personal data of their users. Any data breach or mishandling of such information can lead to significant privacy concerns and break user trust.
Thus, finance companies need to prioritise data privacy by implementing robust data encryption, access controls, and regular security audits. Plus, keep the privacy policies transparent to inform users how their data is collected, used, and protected. These are essential measures to address the data privacy concerns of users.
Convenience And Accessibility
People living in underbanked or unbanked areas, where banks and other traditional financial institutions are scarce or nonexistent, individuals struggle to access basic financial facilities due to physical distance and lack of infrastructure. This disparity leaves them financially underserved and excluded from the formal financial system.
Latency And No Real-Time Data Processing
Slow data processing times in traditional systems can cause delays in transactions, account updates, and the ability to quickly detect and respond to fraudulent activities. Moreover, the manual processes and paper-based documentation further worsen these delays and affect the traders and investors who need up-to-date information handy all the time to make investment decisions well-informed yet urgently. Additionally, customers expect instant access to their financial information and transactions, and any latency can lead to frustration and dissatisfaction.
Plus, delays in fund transfers or payment processing also impact the day-to-day financial activities, which causes inconveniences for individuals and businesses alike.
No Right Financial Literacy
Many people lack the necessary financial literacy when it comes to making decisions about their investments, insurance policies, fixed deposits, and other financial products. Even when Fintech apps or software include educational resources, navigating through the apps and finding the relevant information in the vast knowledge base becomes overwhelming and challenging for users.
Without proper financial literacy, people struggle to understand the benefits and benefits of different investment options, choose suitable insurance policies that meet their needs, or make informed decisions about where to invest their money to get better returns. This lack of understanding often leads to poor financial choices, missed opportunities, and even financial losses.
Lagging Compliance And Interaction With Various Systems
Finance solutions often need to interact with various systems, including banking institutions, payment gateways, and other financial platforms. However, failing to achieve seamless interoperability between different systems can result in fragmented processes and hinder the delivery of efficient financial services.
Furthermore, the fintech industry operates in a highly regulated environment where compliance with ever-evolving financial regulations is crucial. Thus, pacing with these dynamic compliance requirements is essential for finance companies to maintain trust and credibility among users and regulatory authorities.
Limited Working Hours
Traditional financial institutions often operate during standard business hours and business days, which is inconvenient for customers with busy schedules or working professionals to manage and reach these institutes to get the work done. This also causes the customers to encounter difficulties in resolving urgent financial issues, accessing urgent support, or conducting time-sensitive transactions when faced with these restricted hours of operation.
Slow Process
Traditional financial institutions, including banks and insurance companies, often operate with lengthy and time-consuming processes, which causes delays in various financial activities. When customers apply for financial products or services, such as loans, credit cards, or investment accounts, and query about the insurance policy, they are typically required to fill out extensive paper forms. These forms must then be manually processed, which further leads to delays in verifying eligibility and completing the application process.
These slow processes in traditional banking or insurance claim companies are particularly frustrating in urgent situations, such as accessing emergency funds, claiming insurance, or resolving critical financial issues.
Customer Service Issues
In traditional banking institutes, getting accurate and exact guidance can be quite a challenge. And this inefficiency becomes even more evident when customers are sent from one counter to another to get different advice and approvals from different counters. Despite the effort, it often happens that they still do not receive the precise guidance they need.
The process is disappointing, as customers encounter different staff members with varying levels of knowledge and expertise. This inconsistency in information leads to confusion and uncertainty when making important financial decisions.
Costs Associated With Visiting Institutes
Any finance-related paperwork requires customers to visit physical branches or rely on intermediaries, which leads to additional commuting costs, paying the intermediaries, and time-consuming processes. Moreover, sometimes, the need to take time off from work or other commitments to visit these institutes further adds to the overall costs and inconveniences faced by individuals seeking financial services.
Lengthy Approval Processes
When applying for loans, credit cards, or other financial products, individuals often have to wait a long time before they receive approval or rejection. This not only causes frustration but also delays their access to much-needed funds or services.
In the case of businesses, a long approval process for loans or credit facilities hinders their growth and expansion plans. The delayed approvals prevent timely investments, acquisitions, or projects, affecting their competitiveness in the market. This also leads to missed opportunities or unfavourable market conditions, which impacts the overall financial health and success of any individuals or businesses.
Knowledge Of Credit Eligibility
The absence of awareness about credit eligibility often leads to limited access to credit facilities, which hinders individuals from securing loans, credit cards, or other financial resources which they are eligible for. Additionally, individuals may not be aware of the variety of insurance policies, banking options, financing choices, and loan products available in the market. Because of this lack of information, they always choose from the limited options they know about and are uncertain about the best choices for their financial requirements.
Fintech Use Cases
The Fintech Industry is rapidly evolving to rephrase the entire landscape of financial services by using all the potential of innovation and technology. They simply aim to provide businesses and individuals with more accessible, personalised and efficient financial solutions. A few important use cases that FinTech companies serve include:
Personal Financial Management
The applications of banks, demat accounts, and insurance companies provide individuals with powerful tools to manage their finances. Users can gain better control over their money through features like:
Real-time expense tracking
Budgeting assistance
Personalised financial insights
This helps overcome the challenge of limited access to the data related to the movement of money in real-time and get better assistance. It enables users to make informed decisions, set the desired financial goals, and improve their overall financial management and well-being.
Transparent Privacy Policies & Robust Data Protection
Fintech companies prioritise data security and transparency with clear privacy policies. By offering reliable data protection and transparent privacy policies, these companies address data privacy concerns, which:
Instils trust in users to entrust their sensitive financial information
Foster confidence in using digital financial services
Reduces the risk of data breaches
Enhances overall financial security
Instant, Accurate, And Safe Payment
When traditional banks are now adopting fintech’s real-time payment capabilities, they are making quick and reliable fund transfers convenient for users. Users can use these apps and enjoy instant, accurate, and safe transactions without any delays.
It ensures no more waiting in long queues or dealing with slow processes when it comes to paying bills, sending money to friends or family, or making purchases.
Fintech’s instant payments can help to improve financial inclusion. This is because they make making payments easier, even if they do not have a bank account linked. For example, fintech companies have developed mobile payment apps that allow people to make payments with their smartphones through their wallets without the Internet. These apps are particularly useful in emerging markets, where many people do not often carry cash.
24/7 Banking Service
The Fintech mobile apps and platforms operate around the clock, which allows users to access their bank accounts and make transactions from their smartphones. Overcoming the limited working hours of traditional banks, fintech’s 24/7 availability allows users to manage their finances at their convenience, without time constraints. This means that they can:
Check their balance
Transfer money
Pay any bills
Seek assistance from the AI or real expert in the app
And more, even when they are not near a physical bank branch.
Complex Application Processing
Fintech companies simplify complex application processing, such as loan approvals, credit assessments, or mortgage applications, faster, easier, and more convenient. With advanced algorithms and automation, fintech software or platforms streamline the application review and verification, reducing the need for extensive paperwork and manual intervention.
As fintech removes the challenge of slow and elongated application processing, it enables faster decision-making, which benefits both applicants and financial institutions.
Through digitised workflows, automation, and real-time data analysis, fintech:
Accelerates the entire process
Improve the accuracy of application processing
Provides the applicants with quicker responses
Reduce the risk of errors
Enhancing the overall efficiency of financial services
Insurance Technology
Insurance Technology, a branch of fintech known as Insurtech, brings revolutionary changes to the way insurance companies are traditionally operated by the companies and are accessed by users.
For insurers, it means a more efficient and cost-effective process and the ability to reach a wider pool of customers.
For customers, it means a more personalised and convenient experience and the ability to get the right coverage policy at the right price.
How fintech is being used in insurance technology:
Through smart algorithms and digitised documentation, it makes claim settlements with quick verification of documents easier.
Real-time monitoring of insured assets via telematics and IoT integration promotes responsible behaviour of the policyholders and risk reduction. This also results in better and more accurate coverage.
AI-powered fraud detection helps maintain industry integrity and fair premiums.
Seamless customer service with chatbots and virtual assistants, available 24/7, helps policyholders seek instant support with convenience.
Using data from large sets of information, conducting the data-driven risk assessment and underwriting help insurance companies and financial institutions make accurate evaluations and provide customised coverage based on individual needs.
Automated Investment Advice – (Robo Advisors)
Robo-advisors are a class of financial advisers that offer financial advice and investment management services online with minimal to moderate human intervention. These platforms utilise advanced algorithmic trading and electronic markets to automate investment strategies for investors. Leveraging mathematical rules or algorithms, they provide digital financial advice and offer efficient portfolio management to investors.
This guidance tailored to each individual’s financial goals and risk tolerance, helps users overcome the challenge of limited availability and high costs associated with traditional financial advisors.
Robo Advisors offer:
Automated financial planning and personalised financial plans for clients through online surveys.
Investment management is based on Modern Portfolio Theory (MPT) to optimise risk-return tradeoff and automatically manage portfolios.
Diversified and balanced portfolios by investing in various asset classes to ensure they spread the risk and enhance stability.
Continuous portfolio monitoring and automatic rebalancing to maintain the desired risk profile and alignment with long-term goals.
They Can Be Insurance Policy Aggregators
There are Fintech platforms that act as insurance policy aggregators, similar to how traditional intermediaries or middlemen function when seeking insurance policies. These aggregating platforms simplify the process of finding the right insurance coverage by providing a centralised platform where users can access and compare multiple insurance options from various insurers. This convenient approach allows users to save time and effort as they no longer need to visit multiple insurance providers’ offices individually. Instead, they can easily access a wide range of insurance policies, including health, life, auto, property, and travel insurance, all in one place.
These policy aggregators streamline the decision-making process as they:
Present users with a side-by-side comparison of various insurance policies, including coverage, premiums, and terms.
Offer personalised insurance policy recommendations based on user-provided information and data analysis that align with the individual’s requirements and risk profile.
Offer assistance through chat support or virtual assistants, providing users with expert guidance and answers to their insurance-related queries.
Give access to a wide range of insurance policies and premiums on a single platform, they enable users to find cost-effective coverage options that fit their budget.
Can receive real-time updates and alerts about policy changes, renewals, and other important information through the aggregator app or website.
This fintech addresses the challenge of limited access to comprehensive insurance information and streamlines users’ decision-making process.
Expense Traceability Of Personal Expenses
Leveraging digital tools and applications to track and monitor individual spending, users can stay updated about their finances in real time. They can gain insights into their spending habits and clearly identify better financial management opportunities.
These tools allow users to gain better control over their money, understand their spending habits, and make informed financial decisions. Here’s how:
Monitor expenses in real-time and stay updated on spending activities.
Easily analyse expenses of each category, as algorithms categorise expenses automatically for better insight.
Set budget goals, receive notifications for better financial planning, and get budgeting assistance.
Get personalised financial insights based on spending behaviour.
Store and access digital receipts for convenient tracking.
Finance Management For Corporate Accounts
These Fintech solutions are tailored to meet the specific financial needs of businesses and corporations. These platforms provide advanced features to companies to manage cash flows, payroll, invoices, and expenses, streamlining the entire financial processes and ensuring accurate financial reporting.
Plus, with Fintech software that also offers real-time insights and customisable analytics, the corporate finance teams can make informed decisions, optimise their financial strategies, and achieve better financial control and transparency across the organisation.
Moreover, these Fintech tools for corporate finance are designed to integrate with accounting systems and other business applications, enhancing efficiency and collaboration within the company.
Digital Identity Verification
Digital identity verification is the process of electronically confirming an individual or entity’s identity. This software utilises advanced technologies, such as biometrics, artificial intelligence, and blockchain, to verify the identity of individuals in digital transactions and interactions.
This process ensures that only authorised individuals can access financial accounts and make transactions. It also promotes the secure and seamless user onboarding and authentication process across various digital platforms and services.
By employing facial recognition, fingerprint scans, or other biometric markers, Fintech companies can accurately verify users’ identities, which severely helps to prevent fraudulent activities and ensure regulatory compliance.
The introduction of digital identity verification has:
Brought a major shift in the enhancement of the security
Simplified customer experiences
Reduced the need for hefty manual verification processes
Enhances trust in online transactions
Reduced fraud and identity theft
Enhanced safe international financial transactions
Prioritised data privacy and consent management
AI-Powered Credit Scoring
AI-powered credit scoring uses artificial intelligence (AI) to improve the accuracy and efficiency of credit scoring.
Lenders use AI to analyse large amounts of data, including traditional credit data such as an individual’s or a business’s payment history, credit reports, payment patterns, income, and spending habits, and alternative data such as social media activity and mobile phone usage that has other relevant financial information. The AI transforms this raw data into actionable insights by extracting relevant features and patterns that are crucial for credit risk assessment.
Fintech companies are revolutionising the credit assessment process to make it more efficient, accurate, and inclusive by integrating AI-powered credit scoring into their platforms. This allows lenders to make more informed decisions about who to lend money to and at what interest rate and gives more accessibility to individuals and businesses to get credits.
Financial Education And Literacy
Financial education and literacy are key areas where Fintech platforms play a crucial role.
They leverage digital tools and innovative approaches to address the challenge of limited financial literacy and empower businesses and individuals with the necessary knowledge and skills to make more informed financial choices and decisions.
Here are a few key aspects of financial education and literacy that fintech facilitates its users with:
Online Learning Resources that have blogs, articles, tutorials, and interactive modules that cover various financial topics.
Personalised financial insights and tailored recommendations to optimise spending, savings, credit scores, and investments.
Financial calculators and tools for loans, investments, retirement planning, and financial simulations to better understand the financial implications of their decisions.
Interactive budgeting and planning features to set desired financial goals, create budgets, track day-to-day expenses, and monitor progress.
Gamified learning by making users participate in interactive quizzes, challenges, and rewards to give them engaging financial education.
Financial coaching so that users can easily access experts or Robo advisors for personalised guidance and support.
Crowdfunding And Fundraising
The integration of fintech has significantly transformed the entire world of crowdfunding and fundraising and revolutionised how individuals and organisations raise funds for various projects, causes, and ventures. They have done this by providing accessible and user-friendly online platforms for crowdfunding.
These platforms help individuals and organisations to create fundraising campaigns easily and expand their reach beyond traditional boundaries and attract donors or investors from different parts of the world.
Here’s how crowdfunding and fundraising got better with fintech:
The Fintech-powered platforms have made fundraising accessible to anyone with an internet connection, which simplifies the process and attracts a global audience.
The secured payment gateways that facilitate safe transactions inspire confidence among donors and investors to transfer the amounts.
The real-time monitoring and reporting through which fundraisers can track campaign progress in real-time enable them to take data-driven decisions and optimisation.
Fintech introduces various models, such as donation-based, reward-based, equity-based, and peer-to-peer lending.
They promote transparency and accountability in fundraising, providing detailed reports on fund utilisation.
These apps reduce overhead costs and enable fundraisers to reach a broader audience.
Decentralised Finance (DeFi)
Decentralised finance is nearly transforming the financial landscape. Unlike traditional financial systems that rely on intermediaries like banks, DeFi operates on blockchain technology, which ensures secure, fast, and cost-effective transactions without any intermediaries involved.
This is a kind of disruptive approach which is enabled by smart contracts, which automate transaction enforcement and eliminate the need for third-party verification. Plus, the implementation of smart contract solutions on blockchain platforms automates contract execution and enforces agreements.
Here are a few more points on how DeFi has benefited from fintech:
Fintech’s expertise in cybersecurity and data protection has fostered DeFi platforms’ security, making them more resilient to potential threats and attacks.
One of the significant advantages of Fintech in DeFi is its ability to facilitate seamless cross-border transactions, which grants easy access to the global market.
The absence of intermediaries in DeFi not only expedites transactions but also reduces costs significantly.
DeFi opens up new possibilities for financial services, including lending, borrowing, yield farming, and decentralised exchanges, which are all built on blockchain-based protocols and operate efficiently with minimal human intervention.
Big Data Analytics
Using mathematical algorithms and rules, these Fintech companies have harnessed the potential of big data analytics to process, streamline and analyse huge and complex datasets.
This capability has empowered financial institutions to:
Besides, this dynamic collaboration of financial institutions and Fintech companies has also facilitated users to:
Get accurate market predictions
Identify lucrative investment opportunities
Drive innovative strategies in their personal financial domain
Real-Time Fraud Detection
Detecting fraudulent activities is a vital use case in the realm of fintech.
The Fintech software monitors financial transactions and activities in real time by utilising its advanced technologies and data analytics skills. It continuously analyses vast amounts of data, such as user behaviour, transaction history, and location information, to identify suspicious patterns or anomalies that may indicate fraudulent behaviour.
When they foresee or detect any potential fraud, these systems trigger immediate alerts to financial institutions and customers, which enables timely action to prevent financial losses and protect users’ sensitive information. Real-time fraud detection maintains the security and trustworthiness of digital financial services, instilling confidence among customers and fostering a safer financial ecosystem.
Mobile Banking For The Unbanked
Mobile banking aims to extend financial services to individuals who lack access to traditional banking in unbanked areas.
As the adoption of mobiles is widespread, Fintech companies have developed innovative solutions to provide banking services to the population living in unbanked areas using mobile devices.
Through these mobile banking apps, individuals can now:
Open digital accounts
Make digital transactions
Access credit and loans
Save money securely
Get assistance for investing the money
Get all the information online related to their accounts in varied languages
Thus, by removing the need for physical bank branches and paperwork, mobile banking for the unbanked provides a convenient way to manage finances, which promotes financial inclusion and empowers underserved communities.
Automated Digital Processes
The Fintech industry is driving significant improvements in efficiency and accuracy using automated digital processes.
These platforms and software use advanced technologies such as machine learning, AI, and robotic automation to streamline and automate various financial tasks and operations. They digitise and automate processes like:
Customer onboarding
Document verification
Account opening
Transaction processing
Updating the data
Automated risk assessment
Automated complex application processing
Fraud detection and prevention
By automating these and other tasks, Fintech solutions reduce manual intervention, minimise errors, and accelerate turnaround times. Automation of these processes not only enhances the customer experience with seamless and instant services but also enables financial institutions to optimise their resources and focus on strategic initiatives.
FinTech Startups & Companies
Fintech companies and startups are transforming and revolutionising how the entire financial industry changes. Here are a few renowned and rising FinTech companies in the industry.
Venmo
A mobile payment app Venmo allows users to receive and send money to their friends and family. It is mostly used for personal transactions.
PayPal
PayPal is a financial technology company that allows users to send, receive, and hold money online. It is one of the most popular online payment methods, and millions of people around the world use it. It is used for P2P payments, online payments for goods and services, and business payments.
Gpay
Google developed a mobile payment app, GPay, that allows people to send and receive money, pay bills, and shop online. It also allows users to store their cards, check balances, and see what transactions they did using the app.
Groww
Groww is an online platform for investment that allows people to buy and sell stocks, mutual funds, and other investments. The app also provides users with insights on which stock to buy based on data. These insights are based on a variety of factors, including the company’s financial performance, the industry it operates and the overall market sentiment.
CRED
The CRED app allows users to view their credit card statements, make payments, and track their spending all in one place. This makes it easier for people to stay on top of their finances and avoid late fees.
The app also has a marketplace for comparing credit cards, loans, and other financial products. This helps users to find the best deals and make informed financial decisions.
Lemonade
Lemonade is a tech-driven insurance company using artificial intelligence (AI) to automate insurance claims. You can also get quotes from Lemonade from different insurance policy companies and then compare them. They also have a blog section that provides information on how to compare insurance policies.
The Future Of FinTech?
The FinTech companies and their progress only seem to shoot up in the near future, as we can only see how fast the financial sector is getting digitised. But, the movement and investment of money safely, easily, and with the right knowledge will log a toll of concern with the growing digitisation.
However, FinTech companies in India attracted investments of $1.2 billion in the first quarter of 2023, which is a sharp jump of 126% as compared to the fourth quarter of 2022, when the amount raised was $523 million.
Besides, the total investment value worldwide into the fintech companies increased drastically between 2010 and 2019 and reached 216.8 billion U.S. dollars. However, companies and startups though are seeing a fluctuation in the investment sector for the past two-three years they are still improving and getting better with each passing year.
Ravpreet is an avid writer, prone to penning compelling content that hits the right chord. A startup enthusiast, Ravpreet has written content about startups for over three years and helped them succeed. You can also find her cooking, making singing videos, or walking on quiet streets in her free time.
