7 Reasons Why Fintech Adoption is Still on the Rise

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The unparalleled advancement of information technology innovation is transforming how people conduct financial activity in many big ways. In fact, one of the biggest benefactors of digital innovation has been the financial sector or the finance industry. This leads us to the advent of the Fintech (Financial Technology) space, which began to take shape as a popular addition to finance after the global financial crisis in 2008.

Since then, financial services—both Islamic and conventional—have been catapulted to new heights with the introduction of even more powerful technological capabilities, being made more accessible and affordable for thriving markets. 

Some assume that the adoption of FinTech may witness a regression after the seemingly artificial growth of many verticals during the pandemic. Here are a few reasons why this assumption might not be true at all. 

Related: The Rise of the Halal industry and Tech Innovations in 2022

1. Institutions fear being left behind

As technology has advanced, entrance barriers have decreased, compelling traditional financial institutions to adapt or risk falling behind. The COVID-19 pandemic has only expedited the growth of Fintech, according to Dorothy R. Auth, a partner at Cadwalader, Wickersham & Taft LLP. Fintech is the logical continuation of how financial services will develop. Fintech will speed up and streamline transactions. If they do not incorporate technology into their systems, blockchain in particular, will be a disruptive force and threaten traditional banking.

Many banks already collaborate with Fintech companies to improve their service offerings. Financial institutions have noticed a decline in brand loyalty among consumers and an increase in consumer demand for technology, speed, accuracy, and transparency. 

According to the Swiss Finance Institute, the daily average rate of Fintech app downloads surged from 29.2 percent to 32.8 percent during the COVID-19 pandemic.

2. Fintech was not affected by the pandemic

Most industries were negatively impacted by the pandemic, but not Fintech. During the COVID-19 lockdowns, more clients opted for Fintech services as opposed to conventional banking, insurance, and lending. 

Three out of every four consumers will use Fintech apps to send money in 2021. The adoption rate of Fintech among small and medium-sized businesses (SMEs) is now at approximately 25% and is expected to reach 64% within the next few years.

3. Automation leading to higher productivity rates

Technology is primarily to blame—in a good way—for the rise of Fintech. It has completely changed how financial services work, making them nearly unrecognisable from a decade ago because it functions almost exclusively in the virtual world. 

We were able to automate tasks that had previously been done by humans thanks to machines and algorithms, and as a whole, technology has advanced Fintechs beyond traditional financial institutions in a number of ways. Automation speeds up mundane activities and gives personnel more time to work on challenging projects like strategy and innovation. Productivity has grown as a result.

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4. Artificial intelligence will boost value creation

According to McKinsey, artificial intelligence (AI) has the potential to bring up to $1 trillion in value to the global banking sector each year. The adoption of an AI-first approach by banks and other financial institutions is predicted to improve their ability to fend off the invasion of growing technology companies.

Automatic factor discovery, or the machine-based identification of the factors that cause outperformance, will spread throughout the financial services industry and aid in the improvement of financial modelling. 

Knowledge graphs and graph computing will also take on a bigger role as an important application of AI semantic representation. In the coming years, their capacity to help in creating connections and spotting patterns across intricate financial networks by utilising a broad range of sometimes dissimilar data sources will have a significant impact.

Related: Islamic Fintech: Bubble or Boom?

5. Blockchain continues to play a big role

DTL (Distributed Ledger Technology), which enables the simultaneous storage of financial transactions in different locations, will increasingly support ecosystem financing. 

Cross-chain technology, which enables chains built on various protocols to share and transmit data and value across tasks and industries, including payments processing and supply chain management, will increasingly simplify blockchain interoperability.

The fundamental components of current Fintech breakthroughs like digital wallets, digital assets, decentralised finance (DeFi), and non-fungible tokens (NFT) will continue to be smart contracts, zero-knowledge proof, distributed data storage and exchange technologies.

6. Cloud computing compliments future finance processes

According to the McKinsey study, the top 500 global corporations’ EBITDA (profits before interest, tax, depreciation, and amortisation) will exceed $1 trillion by 2030 due to cloud technology. This means that efficient cloud usage can boost the effectiveness of relocated application development and maintenance. 

Cloud-based security procedures and controls that are incorporated and automated can also enhance platform integrity.

Financial institutions are freed from non-core operations like IT infrastructure and data centres thanks to cloud computing, which also makes flexible storage and computing services more affordable. In addition, the cloud is giving rise to fresh models like open banking and banking-as-a-service, upending the traditional partnership between clients and financial service providers.

Related: How to Understand Islamic Fintech in Simple Terms?

7. Fintech empowers the underserved markets

The fact that the Fintech industry was able to reach neglected regions that traditional banks sometimes ignore is one of the primary causes for the exponential development in Fintech adoption. 

These include non-banking individuals and smaller companies with slimmer profit margins. By making banking services, such as money transfers and microloans, more accessible to these markets, a lot of Fintech companies have found success.

Fintech marks the beginning of a new era and perspective in finance, where innovation plays a prominent role in the advancement of the landscape as a whole, and conventional methods are being called into question. Even considering the concerns and mistakes made along the way, there’s no denying that technology can readjust and disrupt many archaic aspects for the better.

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