The fintech industrial revolution is upon us
By Rajesh Agrawal, founder and CEO, Xendpay
The majority of us will associate the term 'industrial revolution' with the early 19th century.
It conjures up images of smog, steam, coal and the clanking, heavy machinery that transformed society into an urbanized one geared towards mass production. While the first industrial revolution produced unparalleled economic growth, it came at a great social cost, as workers became part of a system that alienated them and forced them to work long hours in dismal conditions. They were little more than cogs in an imposing and unfeeling machine.
Since then, however, society has witnessed two more industrial revolutions (advances in electronics and IT, respectively) and now economists are heralding the advent of the 'fourth industrial revolution.' This new industrial era couldn't be further in character from the first as technology will become more individualized and tailored, yet it is also highly democratic and socially minded, having the potential to connect the world and empower people like never before.
This digitalized revolution is undoubtedly booming and the speed of current breakthroughs has no historical precedent. Furthermore, it is disrupting virtually every industry in every country. For instance, the payments industry is one that is already in the midst of this dramatic change, as traditional banks are competing against smaller, combative companies over who will manage our finances in the future. This fierce competition is producing exciting innovations that are having a massive impact on the way money changes hands.
Fintech companies share an ability to build and implement technology that aims to make financial systems and markets more efficient. In 2015, key developments included, amongst many others, the development of alternative loan payments, steps to combat online fraud and also breakthroughs in the transfer of money.
Firms like Lendup and OnDeck seek to provide small business owners with alternatives to bank loans. These companies enable consumers and businesses to refinance old loans in order to get better rates and ultimately improve their financial status. This trend is set to become even more removed from traditional institutions, with platforms such as LendFriend enabling individuals to borrow and lend money with people they know.
Fintech has also made considerable advances in asset protection technology and in doing so has combated fraud. Multi-faceted platforms that flag up hidden bank and credit charges but also alert users to signs of fraud are now common place in the market. However, the system is not perfect and in 2016, fintech companies will have to combat Automated Clearing House transactions, which include credit card fraud in order to help secure their customer's assets more fully.
We have also seen innovations in the money transfer industry, which is a particularly dynamic and disruptive fintech sector. In fact, in just the first two months of 2015, $120 million was poured into the industry through investments and fundraising. Progress in the remittances sector is crucial to aid global development, as it enables migrant workers to send money home more effectively than traditional financial institutions allow. Mobile wallets, for example, continue to gain popularity across the world, especially in areas where access to bank accounts is limited, enabling users to pay for specific goods and services, such as groceries and bills straight from their device. It can be expected that instant mobile-to-mobile transfers will become the standard for individuals sending money across borders, replacing remittances sent in cash in the post or via risky high-street outlets. Not only will this make transfers more secure, but it will also help drive down the cost of transfer fees.
It can be expected that remittances will exceed $600 billion in 2016 – that's four times the global aid budget. About three quarters of this will contribute to the provision of improved food supply, education, healthcare or the establishing of start-up businesses in developing countries. The size of this sum highlights the responsibility of money transfer companies to improve their services and ensure that as much money as possible goes towards improving the quality of life of individuals in poorer nations.
This underlying sentiment combined with record international migration is resulting in a more collaborative global society, a model which is making a significant impact in the business world too. Xendpay, for example, has introduced a 'Pay What You Want' model, a pricing strategy which enables users to choose how much they pay for remitting money rather than imposing mandatory fees, offering the best exchange rates and ensuring that more money gets to those who need it. Interestingly, we find that nine out of ten users choose to leave a voluntary tip, with over two-thirds leaving the suggested tip or more. The success of such models are evidence that the lines between producer and consumer are changing, and that there is space for horizontal networks that operate on the basis of a community movement, rather than top-down, centralised institutions.
We are clearly experiencing profound societal changes and developments in the fintech sector are central to this. No doubt commentators will argue over whether this movement can be called a 'fourth industrial revolution.' However, if the criteria is defined by the impact on the productivity of a society, I certainly think it can be. Cutting edge innovation and a growing rebellious “challenger” attitude in enterprise will certainly force financial services providers to be more democratic, effective and geared toward social good.
Topics: ATMs, Bill Payment, Card Brands, Carriers / Operators, Contactless / NFC, Direct Carrier Billing, EMV, Handsets / Devices, HCE, In-App Payments, Loyalty Programs, Mobile Banking, Mobile/Digital Wallet, Mobile Marketing, Money Transfer / P2P, POS, Trends / Statistics