The 21st century has subjected the world to many financial crisis within a span of 2 decades. The most prominent jolts came from the dotcom bubble of 2000, the financial crisis of 2008 and the giant shock-wave of the coronavirus pandemic of 2020.
Have you ever wondered about the cause of the crisis we’re in? If so, you may want to read through Enough, John Bogle. He knows the where, why, and how of the 2008 economic crisis, which is – on a lesser extent – a reflection of the crisis we’re in right now.
Learning from the past crisis as described by Bogle, the financial sector responds the challenges by relying on tech. Indeed, the financial sector has been quick to acquire the latest technologies since the 1880s but the global democratization of Fintech occurred in this century.
Today’s Fintech is often termed as Fintech 3.0 and pandemic induced lockdown has made it critical to everyday life, especially small and medium enterprises (SMEs). Today, it has emerged as the viable option to survive this financial crisis, owing to the following benefits:
1. Remote Access with Quick Transactions
Traditional Banks have been burdened by protocols, paperwork and validation parameters, even in their digital transactions. Fintech on the other hand, has simplified banked transactions and introduced un-banked digital transactions. This has given the customer choices and leverage to manage transactions swiftly and seamlessly.
Blockchain, as well as new financial and enterprise systems, are decentralized technologies. They are robust in comparison to centralized mainframes. Additionally, the validation and verification of parties and transactions is prompt. Economic prudence states that in times of crisis, when there is an absence of large transactions, it is best to deal in higher volumes of transactions.
Fintech allows for higher volume of transactions without higher incidental cost. It is new technology that is trying to build a user base. Therfore, it has incorporated various incentives to the advantage of the user.
2. Consumer Oriented and Convenient
The Fintech sector is aware of the UX and device requirements of a user. In a time of crisis, when SMEs are suffering a severe cash crunch, apps have reduced expenses on hardware, data usage and power.
On the other hand, consumer oriented UX of these apps has enabled users to network and access capital from banks as well as non-banked financial instruments. New dashboards and chatbots have simplified the users understanding of financial analytics and pursue alternatives to raising capital and operational funds.
The recent investments of Elon Musk in Bitcoin hint at the mainstream emergence of cryptocurrency gateways that are designed for consumer benefit instead of bank protocol. The market of alternative lending and investment is growing at a rapid rate. It is expected to reach 35 billion USD by 2024. These numbers state the obvious, Fintech is doing something right to cater to consumer needs.
3. A quick fix to current and future financial crisis
Governments are short of funds and grappling with the revival of wealth-generation in the economy. SMEs can no longer remain at the mercy of a long-drawn wait to get the necessary relief. Fortunately, they can avail the right Fintech to cater to their business needs. For example:
- Home grown businesses exempt from taxes, can avail Fintech that does not pose restrictions to unregistered businesses, as long as they satisfy the exemption criteria.
- Businesses with legitimate funds do not have to worry about credit ratings with certain Fintechs.
- SMEs can streamline incidental taxes during the business transaction itself, contributing to Government coffers and the economic recovery.
4. Transparency without Compromising Privacy
SMEs have become suspect of large banks because the possibility of leakage of confidential data to large corporates. Fintechs help diversify transaction pools of SMEs. Additionally, technologies like Blockchain, coupled with legislations like General Data Protection Rules (GDPR) of the EU, can make for a transparent and safe business ecosystem.
A recent illustration of this is the Whatsapp bid to become a Fintech based platform. Herein, the consumer already had multiple Fintech choices, hence the power to protect his/her privacy.
