The human mind is perhaps the most powerful weapon in the world; creating a thing and destroying it with a better version. Take money for instance, it started out as trade by barter, then cowries, coins, notes, safes buried in the ground, banks, cheques, credit cards and now people want to receive and transfer money in the blink of an eye, free of charge and with no hassle.
Believe it or not, financial experts say the future of traditional banking is now being threatened by millennials developing start ups that merge financial services with technology. This industry is known as a shorter name of course - 'fintech'. The brilliance in Fintech is it has succeeded in occupying the lending gap between banks and small business owners who face a brick wall when trying to access bank loans due to the banks' bureaucracy. No wonder, the Fintech industry has been predicted as one of the most promising industries in recent times.
Without the burden of expensive branches and traditional banking systems, Fintech start ups focus their resources on providing online lending and payment services to small businesses which are estimated at $2.5 trillion in the developing economies alone.
So what works for the Fintech industry?
The lending business is high risk so security is imperative, however, the industry is run by millennials who live and breathe technology. With the rise of bank frauds, credit card cloning and online scammers; the Fintech industry uses the highest standard of security technology like AU10TIX, which is able to authenticate documents such as digital photos or scans of ID's of customers in seconds with features that record a 10-second turn around speed and 100 percent automation; a first in the security technology market.
According to Ron Atzmon, Managing Director, at AU10TIX, "Our solutions offer the the whole nine yards, the best turnaround speed, security, and overall experience for our clients. With AU10TIX's technology, an online FinTech retailer can authenticate a client's ID in just 10 seconds, saving valuable time and resources."
With such integrated systems, customers require no additional input except submitting an ID document digitally, thereby challenging the traditional manual examination processes. This ease has no doubt helped to meet the needs of online retailers in the payment industry and the Fintech companies as a whole, as they rapidly take on more customers.
Sophisticated data analytics run background checks on customers and make credit decisions in seconds which is light years from the tedious traditional bank loan verification process. Also, because services are online, location is not a barrier and customers can access loans and make payments at any time wherever they are. With the Fintech model similar to "uberization", a recent Citigroup report predicts that in a decade, about 800,000 people will lose their manual processing-driven jobs; this covers between "60-70 percent of retail banking employees". According to the report, "If all the current manual processing can be replaced by automation, these jobs can disappear or evolve".
This is perhaps the key factor that has put Fintech companies firmly in the heart of their customers. Banks have repeatedly said they do not trust SMEs in turning down their loan requests after long verification processes; the Fintech industry has done a fine job in tending to the bruises of SMEs. It also offers them an anonymous payment system. Naturally, with trust comes the money. In 2014 alone, the industry saw a $12.2 billion investment from venture firms that are technology focused. In 2015, Citigroup data said $19 billion was invested into the sector.
While it may seem like the Fintech industry is only on the rise, there are challenges facing the industry, the most being regulation.
Governments are concerned about regulating the industry to prevent against money laundering and funding of terrorist activities. For example, following the Paris attacks, there is speculation that ISIS is using Fintech because of the anonymous payment method facility in the system.
With multiple security, privacy, and technological hurdles to be met in the emerging regulatory framework, innovation will prove to be even more important. The rise of companies like AU10TIX is one of the clearest signs of how the industry is rising to meet this challenge.
Critically, the speed at which AU10TIX operates is a necessary component of any solution in this arena. It's an example of how new solutions must be developed to meet the stringent requirements that governments are putting in place, and how the answer can only come from real innovation.
Financial experts say another rising challenge is the staying power and discipline of the Fintech industry given the amount of money in the financial service industry, especially as a new wave of investors keep lavishing billions of dollars in the industry.
Banks have no doubt taken note of this emerging "competitor" and are now forging alliances with these entrepreneurs with hopes to eventually acquire some of these start ups. A bank would prefer to have its small business owner given a loan by a company it partners with than by a rival bank. In essence, there is still the looming possibility of the big fish swallowing the small fish and this new Fintech buzz fading away.