Home General Fintech and The Financial Market: Main Areas of Influence

Fintech and The Financial Market: Main Areas of Influence

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Fintech is a sophisticated system that connects new technology and financial services sectors, startups, and their associated infrastructure. The financial services industry is rapidly adopting cutting-edge tools and technologies to carry out its operations and put into place fundamentally innovative solutions. New financial technologies are impacting all manufacturing areas, including retail, telecommunications, pharmaceuticals, and agriculture. They also affect the industries of insurance, lending, accounting services, real estate appraisals, asset management, investment, tax administration, etc.

How Fintech Impacts The Financial System

The global financial crisis has revealed severe problems in the sphere of financial regulation and supervision. Consequently, the Financial Stability Board is undertaking a comprehensive review of the global financial regulatory architecture to set standards. A weakness identified by the crisis included poor risk data gathering and reporting by banks. This resulted in the Basel Committee on Banking Supervision issuing the Principles for Risk Aggregation and Reporting in 2013. It was a key milestone because the principles provided minimum data collection and management standards. That is why the Fintech sector requires additional technology investments and institutional reorganization. The growing complexity of the worldwide legal and regulatory system, increasing reporting requirements, and the risk of high costly fines as a result of stricter post-crisis standards have contributed to higher compliance costs for financial institutions. This has become especially critical for cross-border banks facing daunting and contradictory regulations.

Fintech nowadays is usually considered to be a unique sector of financial services and information technology. However, the connection between finance and technology has a long history, constantly enhancing and complementing one another. The 2008 global financial crisis was a turning moment, as we noted above, and the reason for the evolution of Fintech into a new pattern. The constant development creates different challenges for regulators and market players, especially in terms of balancing the possible benefits of innovation with the potential risks.

Currently, Fintech encompasses a variety of tech startups as well as established businesses attempting to enhance and optimize financial services. Investments in this sector exceeded 157 billion dollars at the end of 2014. Following it, the phrase “Fintech” started to refer to a huge and quickly expanding industry.

The development of financial technology is streamlining traditional financial services in several areas:

Payments and transactions: online payment operations, online transfer services, P2P (person-to-person) currency exchange, B2B (business-to-business) payment and transfer services, and cloud-based cash registers, smart terminals, and large-scale payment services;

Financing: P2P consumer and business lending, crowdfunding;

Capital management: robo-consulting, financial planning software and applications, social trading, algorithmic stock trading, and money-saving services.

Fintech Affects The Financial Market In Several Significant Ways:

1. Increasing competition, consumer empowerment, the democratization of access to financial services, particularly in developing countries, and, as a consequence, encouraging continued innovation. Innovation generates new opportunities for products/services, new approaches, and channels for commercialization;

2. Enhancing effectiveness by innovating in:

  • Relevant infrastructures including payment systems infrastructure, credit information systems, and government rosters.

  • Back-office and front-office operations in traditional financial institutions, as well as in their decision-making process. It entails better risk management and regulatory compliance. Operations also involve improving risk management and regulatory compliance. Institutional innovation frequently depends on collaborations with fintech companies that perform specialized tasks such as providing credit scoring, insurance pricing tools, prepaid account administration, and communications automation.

3. Creating new investment opportunities for established financial institutions. Banks and insurance companies are investing in and purchasing fintech companies more frequently as part of their (broader) investment portfolio, and some are also funding fintech incubators to create investment opportunities;

4. Enhancing financial oversight;

5. Making the risk management procedure smoother and more effective.

Geniusee experts have extensive experience in developing financial applications in different areas: cryptocurrencies, digital wallets, trading platforms, and so on. More and more companies rely on Fintech for accounting, e-commerce, payment processing, and, in some cases, support for government assistance initiatives. Fintech makes previously unavailable traditional financial services accessible to people and businesses in innovative and new ways. That is why it became one of the most developed areas with huge business perspectives for market players.

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Linda Barbara

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