Benefits and Drawbacks of Fintech, With Suggested Solutions

The benefits and drawbacks of Fintech

Fintech refers to technology that improves any process related to financial services. Its functions include but are not limited to; managing funds, making payments, and managing insurance. Just like any other technological innovation, Fintech has its fair share of advantages and disadvantages.

Benefits 

1. Time management: Fintech provides fast and timely access to its services. All processes are available online as opposed to the traditional approach of frequenting a physical branch. This has advanced time optimization and quashed pointless misspend of time.

2. Cost saving: Fintech has eliminated the extra cost and bank fees charged when carrying out transactions through the traditional way of using a bank.  It has also eradicated the cost of exchange difference when making transactions between countries involving diverse currencies. It allows businesses to send and receive money without charging high conversion fees.

3. Cost reduction: Fintech companies, as opposed to traditional banks, offer relatively lower commissions. Customers can evade the high rates charged by banks by patronizing Fintech companies.

4. Lending: Fintech has enhanced the lending system by providing platforms where borrowers can get cheap loans and investors are also guaranteed equally high returns from the transactions.

5. Process optimization: Fintech has streamlined the process of financial transactions and investments by removing any third-party involvement and directly linking and exchanging transactions.

6. Convenience: Fintech has streamlined most of the financial processes in businesses by offering convenience to users at their fingertips. It helps people with disabilities by providing options to carry out financial transactions from the comfort of their homes. 

7. Greater accessibility: Fintech is accessible to virtually anyone with an internet connection. Individuals and businesses can access Fintech services from anywhere with just their mobile devices.

8. Access to diverse services: Fintech is a broad category that encompasses many different services, all in accordance to the respective needs of the users. Services including but not limited to; online banking, lending, online payment, insurance, and investment.

9. Transparency: Fintech increases transparency and traceability of how money is spent. Blockchain and other new technologies use distributed ledgers to ensure that transactions are immutable and timestamped.

10. Advanced security: Fintech guarantees financial safety by providing fast, secure and authenticated access. Although the technology is still prone to cyber attacks, Fintech is constantly working towards developing technologies used to curb the occurrence of cyber crime.

 

11. Speedy response to loans: Fintech gives businesses and individuals quick access to loans. Borrowers can directly connect with their private lenders through Fintech platforms to get funding, at a cheap cost too, unlike the traditional banks which involves a strenuous and more expensive process.

12. Competence: Artificial Intelligence has changed how fintech companies scale, redefining the services they offer to clients. The newest advancements of Fintech utilizes AI to improve the quality of financial services. Automation doesn’t involve humans and hence automation offers a high level of specialization. As a result, it has a high degree of efficiency and service quality. Apps like Betterment and Ellevest provide a platform that adopts technology to make the right financial decisions.

Drawbacks

1. No physical branches: Unlike the traditional banks, Fintech services are solely accessed online. With such immense limitations, it leaves us asking questions. What happens when you can’t access the internet? Or if the internet shuts down? Physical branches would always be a requirement for financial organizations as the go-to for customer access and support. The idea of a physical branch provides a special sense of security to customers. People feel they can relate better with humans than robots, when it pertains to issues of business.

 

2. Limited reach: Fintech services are limited to those with access to the internet. This ostracizes the part of the population that does not have access to the internet. This means that any of the economically beneficial aspects of Fintech will be lost on people who are unable to access the internet.

3. Lack of uniform regulations: It is said that financial services are among the most heavily regulated sectors in the world, but the Fintech community is yet to have a unified policy on these regulations. Though some countries have taken measures to regulate Fintech companies in their regions, the safety of Fintech remains under debate as there is still no clarity and transparency on how the operations of Fintech are regulated. Uncertainty of the outcome of unsupervised operations poses a serious barrier to the growth of Fintech. Most consumers are skeptical of investing in unreliable sources.

Since Fintech companies don’t have one particular regulator, multiple bodies have emerged to regulate the activities of Fintech. The lack of uniform regulations makes it difficult for authorities to properly monitor and supervise Fintech operations. 

4. Security breaches: Unfortunately, one of the biggest reasons for not using fintech is security. Fintech platforms are prone to cyber attacks . There is still a big doubt as to the security of data and finances in Fintech platforms. 

5. Privacy: Since there isn’t a specific policy for regulating Fintech, it is unclear as to how Fintech companies use individual data and records. The protection of personal data and financial records from third party access is still a valid concern among customers.

6. Interference from government and banks: The Fintech community will always face interference from the government. With the main purpose being to eliminate the traditional financial methods in the financial industry, Fintech competes greatly with traditional banks. The Government is yet to fully embrace Fintech as they are still skeptical of these new technologies. Breeding from their doubts, the government will always interfere with Fintech in a bid to regulate and monitor their operations. These regulations and policies are challenging for fintech companies as they raise doubts and suspicions about their authenticity among consumers.

Solutions

•  There is a large amount of Fintech startups appearing. Without strict regulations, these companies can conduct their businesses any which way as there are no demanding standards. Strict regulations should be set and the affiliated penalties implemented on companies that are caught operating outside the law.

• A global consensus should be held to foster a unified approach to the regulations and policies guiding Fintechs. Governments have an indispensable role in securing the benefits of Fintech and also managing their risks.

• Fintech companies should aim to be regulated to avoid constant interference from the government as this reduces their customer trust level.

• Fintech firms should take extra precautions to prevent security breaches in their systems by implementing top-notch security mechanisms in place.

• Since their services are exclusively online, Fintech companies should strive to get a physical presence to accommodate people who are unable to access the internet. An option is collaborating with the traditional banks. The traditional banks already hold physical branches and when merged with the online presence of Fintech, promises a positive influence in the financial industry.

• Fintech companies should protect the privacy of customer’s data and financial records. Personal data should not be divulged to third party apps or organizations.

Conclusion

We should always balance out new technologies with the traditional system in order not to disrupt the financial industry. It is unlikely that Fintech will replace banks. Both offer a vast diversity of services but with similar goals in mind, improving the overall financial experience of customers. Banks focus on accepting deposits and granting of loans and advances while Fintech companies are mainly concerned with improving the delivery and use of financial services. One cannot substitute the other. In a bid to replace the traditional banks, Fintech companies would become banks themselves.

We can’t expect people to switch completely away from banks to fintech. Some customers are skeptical about the authenticity of e-commerce companies. But if fintech and banks can cooperate and collaborate, they’ll provide a healthy balance in the financial industry.

Reasons why a partnership would be advantageous to both parties: 

• If banks adopt the advanced technologies of Fintech, it guarantees a boost in the overall financial industry. Technology is always said to improve the quality of life.

• If Fintech collaborates with banks, they can be under the same government regulations. This will be very beneficial to Fintech companies as they would gain more trust and patronage from customers. The hindrances associated with their being not-regulated would as quickly be quashed as it was initiated.

The impact of Fintech merging with banks far outweighs the need for constant competition and comparisons.

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