The Rise of Fintech

By Cheng Loong Neo

Over the past few years, you might have constantly heard of the term Fintech or come across the term in your readings. It is the latest and most disputed technological revolution right now and it is no surprise that many companies and people are shifting their focus to it.

Though Fintech basically means Financial Technology, its true meaning and application is beyond the literal sense of the word. It is the perfect marriage between the finance and technology sectors. Put it simply, if Silicon Valley and Wall Street had a baby, Fintech would be it. Having said all these, what exactly is Fintech?

Fintech is the application of technology into the financial sector to improve system efficiency, reduce cost and increase product offerings. Fintech originally started off as a way to ease the back office operations of banks, but it has now evolved into many other avenues like trading, lending, payment systems and even financial advisory. Consider the example of insurance. Traditionally, in order to purchase a health insurance policy, one would have to approach an insurance agent who would then require you to fill up countless pages of documents before he or she recommends you the suitable policy. However, the emergence of Fintech has allowed the America based health insurance companies like Oscar to distinguish themselves as a cheaper and more convenient alternative. In order to purchase a health policy from Oscar, all one would have to do is to fill in his or her particulars online to attain a price and policy quote. Fintech has revolutionized the finance industry and is expected to be the main driving force for the industry in the foreseeable future. Financial institutions, universities and even government agencies have joined this Fintech wave by developing their own initiatives or partnering with existing Fintech companies to stay relevant in this competitive landscape. World’s largest asset manager, Blackrock is just one of the many companies who have tapped into this space when it enhanced its asset management capabilities by purchasing online investment firm, FutureAdvisor for $150 million in August 2015.

However, even though it can be highly beneficial to businesses and consumers, there are also numerous risks inherent in the use of Fintech services. Fintech has had its fair share of criticism due to regulatory, data privacy and competition issues. Regulating Fintech companies is extremely difficult due to the lack of a defined regulatory framework to govern these companies. An oversight of the regulations will only cause more problems for all the parties involved. The issue of data privacy has always been an issue since the advent of the digital age. Poor or inadequate IT infrastructure used by these Fintech companies only compromises the safety of the data provided by clients. Finally, there is also the issue on competition where large companies are able to outspend their relatively smaller competitors, creating a less fragmented marketplace.

Despite these shortfalls, the rise of Fintech will definitely continue in the near future as consumers will always be looking for more convenient and cost effective alternatives to traditional services. It will also continue expanding into other avenues, further integrating the finance and technology industries.