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The pandemic has transformed the way people live and businesses operate. While many industries have had to adjust their processes to adapt to a new normal, some have thrived on their digital model. A good example of one that has flourished is financial technology, or fintech, which uses technology to provide banking and financial services.
Fintech was a growth space before the pandemic, with growth in adoption of industry services rising from 16% in 2015 to 64% in 2019. If fintech players were not immune to the impact of Covid-19, they were generally able to recover faster due to their agile model and increased use of digital channels.
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Key Fintech Growth Drivers
Given the trend towards digitization, let’s accept that fintech is here to stay. With that in mind, let’s talk more about the rise of this space and some of the exciting opportunities that lie ahead in this industry.
1. Accessibility to an underserved market
One of the main reasons for the massive growth in fintech adoption is that the sector has successfully tapped into underserved markets that traditional banks often overlook. These include people who don’t have a bank account or small businesses with lower profit margins. Many fintech companies have appealed to these segments by facilitating access to banking services, including money transfers and micro-loans.
2. Increase in contactless payments
Contactless payments have increased during the pandemic as personal hygiene safety has become a major concern. Quarantines, lockdowns and social distancing rules have also driven the rise of e-commerce, telemedicine and remote working, all of which have pushed online payments further.
You can expect these contactless methods to be part of the new normal because of their convenience. In fact, businesses are now exploring more diverse payment options like QR codes and voice-activated payments to respond to changing consumer behavior.
3. Technological Advances
Of course, since technology forms the heart of fintech, advancements in technology have also been an important driver of the industry. Artificial intelligence (AI), machine learning (ML) and cloud computing are technologies that have driven the development of fintech and will continue to do so over the next decade.
Related: Digital Twins: AI and ML Transforming the Fintech Landscape
Future opportunities for fintech companies
Fintech has seen impressive growth in recent years. However, given the breadth of this space, it is essential to focus on the key opportunities that have the most potential. Some of them in my opinion are:
1. Integrated funding
Integrated finance refers to the integration of financial services or tools into the offerings of a non-financial company. Integrated finance also helps streamline the buying journey and remove barriers to purchase, creating a smoother customer experience. Examples of in-app financing include online stores offering loans or “buy now, pay later” (BNPL) options on their website or app.
Faced with the growing demand for embedded finance, fintech players are starting to offer banking as a service (BaaS) solutions. While you can quickly deliver these services through APIs, you need to build a strong risk and compliance strategy as an integrated finance partner for businesses.
2. Artificial Intelligence (AI)
The fintech industry is notorious for processing large volumes of data, which makes AI technologies valuable for collecting and storing this information. Depending on your needs, you can capitalize on different AI applications to help your operations. For example, analyzing user behavior allows you to provide personalized financial services or advice based on the needs of each client.
Alternatively, AI algorithms can help you make predictions to make smart trading decisions. An example is making predictions for risk assessment, which allows you to detect potential fraud in transactions and minimize the likelihood of human error.
Related: Fintech in 2022 and Beyond: ‘Balloon’ or ‘Bubble’?
3. Sustainable finance
With the increasing focus on environmental protection due to climate change, sustainable or green finance is another great opportunity you can seize. The banking industry has actively implemented environmental, social and governance (ESG) initiatives – and now fintech players are catching up.
Specifically, companies in the sector are looking for ways to integrate sustainability into their operations, whether by increasing climate-friendly investments or reducing carbon emissions. In this way, they can encourage individuals to be more aware of their environmental impact and to take action.
4. Decentralized finance
The concept of decentralized finance, or DeFi, has gained traction in the fintech space due to the popularity of cryptocurrencies and blockchain. DeFi refers to an emerging technology that uses a distributed ledger to manage financial transactions, removing the need for intermediaries. Fintech has already started integrating DeFi into interfaces, so we can expect this to take on a bigger role in the future.
Fintech is undoubtedly here to stay, as evidenced by its massive growth and resilience during the pandemic. In today’s digital age, consumers are looking for convenience and security – and fintech is helping to bridge that gap in financial services. So going forward, I think we can expect more innovation in the space to provide accessible solutions to more underserved audiences.