Curated by: Shaggy
What exactly is the purpose of financial technology? Although the history of this industry can be traced back more than a hundred years ago, when a device known as “pantelegraph” in 1860 was designed to transmit signatures across telegraphic lines (very useful to verify transactions across some banks back in the day), the goal of FinTech has always seemed to be the democratization of financial services, giving easier access to people, from all sorts of backgrounds, not only to their money but to a wide variety of options to use it, from simple payments to downright developing investment portfolios.
And, since the FinTech boom that resulted from the economic recession of 2008, which gave us concepts like cryptocurrency and further popularized P2P payment systems, allowed smaller players, start-ups, and individual investors to look for alternatives to traditional banking, which was seen by many as one of the critical elements of the aforementioned crisis. In short, many people stopped blindly trusting traditional financial systems, and our technological level was ready to offer the solutions, innovations, and disruptions that characterize FinTech.
As a result, the FinTech industry has been growing rapidly in recent years, and it shows no signs of slowing down. And on the surface, it seems like FinTech is making it easier than ever for people to access financial alternatives, but are these companies delivering on the promise of a more democratized access to finances? It’s hard to say. On the one hand, FinTech companies have created several innovative products that make it easier than ever to send and receive payments, borrow money, and invest in new ventures. On the other hand, many of these products are only available to people who already have a good deal of financial resources, so for the average person on the street, FinTech products may not be any more accessible than traditional financial products.
This has sparked some debate about whether or not this industry is actually helping people. Some critics argue that FinTech companies are mostly concerned with making money and that they are not doing enough to help people who are struggling financially. Others argue that FinTech is providing valuable services to help people improve their financial situation. And the truth probably lies somewhere in between.
More than just growth
“The case is not implausible”, opines the article “Can Fintech Really Save Us?”. “The application of modern technology to parts of the financial sector has yielded some profound advances that are largely underappreciated. The two Irish brothers who founded Stripe in their 20s created something almost comically simple: seven lines of code that can be inserted into any business website or app and allow the business to accept digital payments.”
Cases like this exemplify the potential of FinTech systems to open up access to financial areas that would otherwise be closed to the small businesses that could benefit the most from it. The same article points out the growth of Stripe as a popular payment alternative, processing almost $640 billion in transactions in 2021, and the number of competing alternatives has only grown in the ten years since the launch of this platform. And this is not to mention other areas of finance, like investment, that have also benefited from the growth of the FinTech space, from newcomers like eToro to more established institutions like J.P. Morgan, opening up new ways to accumulate and grow wealth.
So, while this might show that there is a genuine interest in trying to open access to financial alternatives, and the growth of the FinTech industry seems to show that there’s a market hungry for these products, it also begs the question: Is the growth of the FinTech space bringing more access to people traditionally left out of banking?
“The FinTech industry has been growing rapidly in recent years, and this has led to more financial options for everyday people. Now, many apps and websites offer alternatives to traditional banking products, giving people more choices when it comes to their money. This is a good thing, as it means that people can find the financial solution that works best for them”, says Rod Aburto, Service Delivery Manager, and Partner, at Scio. “However, it is important to remember that not all of these alternatives are necessarily better than the traditional options. Some of them may have higher fees, less security, or necessitate specific devices with internet access (like smartphones, tablets, or computers) to be able to access them in the first place. The bottom line is that the growth of the FinTech industry is providing more choice for consumers, but which consumers we are talking about is an important question for anyone looking to revolutionize this space.”
The accessibility challenge of FinTech
With the number of startups and companies that are springing up all over the world, as well as the increasing investment from both private and public institutions, there’s no question about the future of FinTech. However, an observation that could be made about the industry is that many of the platforms and products being developed are only accessible to those who have a certain level of financial and technological literacy, likely leaving many people behind when it comes to innovation in this sector.
In developed countries, people with low incomes or poor credit histories may find it difficult to access FinTech products, and lack of infrastructure and awareness can be major barriers to entry, which can sometimes go beyond the scope of a specific application. What this means is that, as the industry continues to grow, it’s important to ensure that everyone has an equal opportunity to benefit from its innovations. Otherwise, this industry runs the risk of exacerbating existing inequality.
This is where the idea of “interdependence” might become useful, referring to how no user or system exists in isolation, and it is in the best interests of the FinTech sector to look at the whole financial landscape holistically and promote solutions that solve problems without creating additional ones. Let’s illustrate it with an example: according to Forbes, the number of senior citizens “with any type of debt increased from 38% in 1989 to 61% in 2016. The amount owed jumped from about $7,500 to more than $31,000 (2016 dollars)”, and this problem has only become bigger since the outset of the pandemic in 2020. Demand for credit cards among this demographic cratered around that period.
This could be, then, an interesting challenge to where FinTech can find a plausible solution. From debt-managing applications to personalized AI-driven financial advisors that could design plans for older people, a hypothetical app could be created for this specific demographic, but the interdependent of this problem (which can range from possible technological illiteracy to the fact that 27% of 60+ citizens in the US live alone, and can’t rely on younger people for help) always risk leaving potential users out, especially from lower social backgrounds, which are the people that need it the most. If that’s the case, was an actual solution offered by this hypothetical app? Is FinTech delivering on its promise of easier access and democratization of finance?
“In FinTech, there’s no shortage of new ideas. Every day, it seems like there’s a new start-up promising to revolutionize the way we handle our finances. But turning these ideas into viable products is far from easy”, continues Rod Aburto. “The financial sector is complex and constantly changing, making it hard to build products that can keep up with the latest trends. Also, FinTech products are often built on top of legacy systems, which can make integration difficult, and customers can be reluctant to adopt new technologies that seem too far away from the traditional banking systems they are used to. Or to adopt the technology at all if they don’t have much financial literacy in the first place. We need a very human-focused approach to make sure FinTech can live up to its promise and make finance an open concept where everyone can participate.”
In other words, the growth of the FinTech industry is a complete net positive, as long as the industry doesn’t lose a democratizing approach. The more accessible we can make these platforms and products, the more backgrounds we consider before embarking on development, and the more risks the industry is willing to run to offer an alternative to the traditional financial systems we currently have in place, the more likely is that a true revolution in the way we use money can begin.
The Key Takeaways
- The big promise of the FinTech sector is to promote greater access to financial systems and services for the average person through technological platforms and applications.
- For the most part, this industry has been successful in its growth, but the question remains open about accessibility to these solutions.
- FinTech should help democratize access to finance, but without a look into interdependent systems and a people-first approach, the industry runs the risk of widening an inequality gap.
- The lesson is that FinTech doesn’t exist in isolation and these holistic solutions are what separate it from the traditional banking systems of today.
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