How FinTech disruptors help improve business performance
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Performance Improvement

How FinTech disruptors help improve business performance

March 18, 2021

4 min read

Devin Culham

Devin Culham

FinTech has recently become a popular buzzword among spectators in the financial industry for its potential and universal application. According to the EY Global FinTech Adoption Index, FinTech adoption rates have risen by 48 percent since 2015 to encompass a global adoption rate of 68 percent as of 2019. But how did a digital technology designed to enhance the delivery of financial products and services become so highly sought after in emerging markets?

The answer is relatively simple. In the aftermath of the global financial crisis, consumers lost trust in banks and other traditional financial institutions. In their place, innovative newcomers set out to disrupt the financial paradigm that was ignored by Silicon Valley for too long. The wave of innovation that soon hit finance benefited from early momentum that coincided with millennials’ coming of age. Like everything else, the digital generation demanded a seamless Amazon-like customer experience – which included financial services.

At first, it looked as though the nimble FinTech disruptors were set out to replace brick and mortar banking. The banking sector, albeit burdened with cumbersome bureaucracy, rigid infrastructure, and sluggish legacy systems, had the upper hand. But due to its scale, broad client base, experience, and domain knowledge that cuts across the financial spectrum, it turned out that partnership, rather than hostility, was the model for the future.

Since then, FinTech has swelled in literally every corner of the world. Some of the newest regions primed for the rise in FinTech are Gulf Cooperation Council (GCC) countries and Africa. According to a recent report, GCC countries are among the best prepared for FinTech adoption in the Middle East and Africa. Among the driving forces for the implementation of FinTech are preferences from clients for digital banking, the availability of capital, and regulatory support (S&P Capital, 2019). By 2022, FinTech investment in the Middle East is expected to grow to 2 billion dollars with the leading centers in the UAE. There, the Dubai International Finance Centre (DIFC) rolled out a $100 million FinTech fund in 2017, followed by Bahrain, where two funds of $100 million were launched to support FinTech startups.

Today, FinTech is spreading across the whole financial value chain: from mobile payments and peer-to-peer lending to insurance and Robo-advising. As the sector matures, so do new domains providing additional business services. WealthTech, which utilizes technology to augment professional wealth management, is one further application of financial technology. Additionally, PropTech uses digital technology to enhance and streamline the process of buying, selling, and renting properties. Picture 1 illustrates the main FinTech categories ranked by their adoption rate since 2014. The figures show the percentage of respondents who reported using one or more FinTech services in that category.

Comparison of FinTech Categories Ranked by Adoption Rate
Comparison of FinTech Categories Ranked by Adoption Rate; Source: EY (2019)

Perhaps the most prominent force shaping the future of the industry is so-called open banking, driven by recent regulatory changes such as the second EU Payment Services Directive (PSD2). Open banking enables customers to have full control over their financial data, once accessible only by their bank. Customers are now able to share the data from their bank accounts with third parties through the seamless flow of data conducted by the so-called application programming interface (API).

The implications of FinTech have the opportunity to streamline business operations. Here are four ways that organizations can use FinTech to help improve business performance

1. Business to business (B2B) payments

Although retail customers have primarily been the focus when it comes to payments, the attention is moving to B2B segments where vast opportunities exist. Invoice automation, accounts payable management, cross-border transactions, and business expense management bring immense efficiency gains to companies.

2. Financial analytics

FinTech solutions can also use business financial data to provide insights and suggest strategic actions. By employing innovative digital solutions, companies can leverage predictive sales analytics, product and customer profitability analytics, and cash flow analytics to improve performance.

3. Accounting and reporting automation

Routine, rule-based tasks such as accounting and reporting are the perfect fit for automation. Utilizing FinTech for these functions can free up resources to be more productively employed elsewhere. FinTech is enabling companies to use financial technology to streamline their process and accelerate growth.

4. Corporate treasury management

Smart APIs will be a driver of back-office automation and corporate treasury management while enabling real-time decision-making and sophisticated analysis and forecasting. For example, corporate treasurers will be able to monitor their account balances held at different banks in real-time, check payment status, validate account numbers of new customers, and make one-time ACH payments to vendors. By replacing labor-intensive and costly SFTP file transfers, APIs will facilitate more efficient payments that enable better management of working capital and support more accurate decision-making and forecasting. APIs with built-in AI will also deliver real-time financial insights and projections.

FinTech has disrupted the financial sector and reshaped the economic landscape, bringing benefits to clients and consumers, to businesses small and large. However, the finance industry might be ripe for another disruption, this time from BigTech. Companies like Facebook, Google, and Amazon are eyeing opportunities to grab a piece of this lucrative market despite surmountable challenges. In June, Facebook shared its FinTech aspirations with the announcement of the ill-fated cryptocurrency Libra. However, in the months to follow, Libra has received its share of skepticism from regulators and investors alike. In contrast to nimble FinTech companies, the possibility of BigTech giants entering the industry poses a substantial threat to the dominance of the banking sector.

The future in FinTech is not guaranteed. Still, one thing is certain – companies will reap additional benefits from the increased competition that will bring new solutions for improvements in their business performance.

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