FINTECH dynamism in the global financial system

Financial technology (popularly known as fintech) is the description of new technology that seeks to improve and automate the delivery and use of financial services. It is the adoption of technology for financial services that has disrupted the traditional financial methods. At its heart, fintech is utilised to help companies, business owners, and consumers better manage their financial operations, processes, and lives. It is composed of specialised software and algorithms that are used on computers, smartphones and internet-compliant electronic screens for financial services which include procurement, payment, collection, monitoring and control. Fintech also includes the development and use of crypto-currencies, such as Bitcoin, artificial intelligence (AI) blockchain and cloud computing. While that segment of fintech may see the most headlines, the big money still lies in its use in the traditional global banking industry and its multi-trillion-dollar market capitalization.

Fintech refers to the integration of technology into offerings by financial services companies to improve their use and delivery to customers. It primarily works by unbundling offerings by such firms and creating new markets for them. Companies in the finance industry that use fintech have expanded financial inclusion and use technology to cut down on operational costs. Fintech funding is on the rise, but regulatory challenges exist. Examples of fintech applications include Flutterwave Inline, robo-advisors, Jumia payment app, peer-to-peer (P2P) lending apps, investment apps, and crypto apps, among others. In the 60s, fintech referred to machines, computers and other tools solely used for financial services. When fintech emerged in the 21st century, the term was initially applied to the technology employed at the backend systems of established financial institutions, such as banks and insurance companies.

These technologies (hardware and software) include De La Rue currency counting machine, digital interest display board, fake currency detector, Automated Teller Machine (ATM), Quick Response (QR) and Barcode scanners, Sage Accounting software, etc. Between 2018 and 2023, there has been a shift of fintech to consumer-oriented services. Fintech now includes different sectors and industries such as real estate, health, education, retail banking, transport, fundraising and non-profit, and investment management, to name a few. There is practically no sector of the economy, which pays or receives payments, that fintech cannot be applied to. We are now in an era when payment networks help solve real-world and real-time challenges. Payment networks and fintechs are now partnering for the betterment of businesses and communities. Daily, the number of people adopting the use of fintech apps in their financial transactions is increasing at an alarming rate because of their convenience.

A 2022 survey of consumers in the United States and United Kingdom by Plaid, a fintech company with headquarters in San Francisco and offices in New York, Salt Lake City, Amsterdam and London, revealed that fintech helped them. 61 percent weathered economic challenges with the use of fintech. 48 percent felt more in control of their finances after they started using fintech, and 27 percent increased their savings and banking experience with the use of fintech. With virtual banks like OPAY, Palm Pay, Kuda, Eyowo, Rubies, ALAT, and Mint, a lot of unbanked Nigerians can now operate bank accounts in rural areas where there is no physical presence of banks. Bank accounts, market services and loans, expense trackers and accounting software are essential to financial prosperity for individuals as they are for businesses, helping to pave the way for homeownership, car acquisition, better jobs, better health care, business development and thriving communities.

Yet some 1.4 billion adults globally lack access to financial tools that could boost their lives and livelihood, according to The World Bank report titled “COVID-19 Boosted the Adoption of Digital Financing Services” of 21 July, 2022. These people are hardest to reach – and more commonly women, poorer, less educated, and living in rural areas. Two-thirds of adults worldwide now make or receive a digital payment. For those with limited access to or fraught interactions with the financial system, digital technology may be the solution. Mobile payments, prepaid cards, digital wallets and peer-to-peer payments all play an important role in opening up the ecosystem and improving financial health across the board. Broadly, the term “financial technology” can apply to any innovation in how people transact financial business, from the invention of digital money to double-entry bookkeeping.

Since the internet revolution, financial technology has grown explosively. Every adult in the city is most likely using some form of fintech on a regular basis. Some examples include transferring money from your debit account to your current account via your smartphone, sending money to a friend through OPAY, or managing investments through an online broker. According to Ernst & Young (EY’s) 2019 Global FinTech Adoption Index, “Adoption of FinTech services have moved steadily upward, from 16% in 2015, the year EY published its first FinTech Adoption Index, to 33% in 2017, to 64% in 2019 and 2020 and 67% in 2022. The most talked-about (and most funded) fintech startups share the same characteristics: They are designed to challenge, and eventually take over, traditional financial services providers by being faster, serving an underserved segment of the global population, and providing faster and better service than those of conventional banks.

For example, financial company Affirm seeks to cut credit card companies out of the online shopping process by offering a way for consumers to secure immediate, short-term loans for purchases. While rates can be high, Affirm claims to offer a way for consumers with poor or no credit a way to secure credit and build their credit history. Kuda, the money App for Africans, has zero maintenance fees, free transfers, automatic savings and investment once an account is opened. The demerits of operating a fintech in Nigeria include occasional network challenges in some parts of the country and epileptic power supply which may affect charging of phones. High level of illiterates who cannot independently operate smartphones is also a big challenge, especially in the rural areas!