Recently, FinTechs sector expert Jason Simon, in projecting the main challenges post-coronavirus pandemic in Latin America and the Caribbean, noted that individuals, companies, and countries will be confronted with the need to adapt their growth models to the digital era. Now, this specialist comes to explain everything related to what is happening with FinTechs and the digital era of banking.
In a recent presentation, Simon argued that the pandemic has had negative impacts on the global economy. Still, it has also created a dramatic increase in the development of digital technologies that are enabling new services, greater access, and opportunities never before imagined.
In addition, many other experts have highlighted that in a region where less than 50% of the population is banked, the rise of FinTechs can be a new mechanism to formalize markets and significantly boost financial inclusion. Statements such as these coincide with a global phenomenon that has accelerated and multiplied in the midst of a pandemic: the digital transformation of banking and the rise of digital financial services.
According to Simon, there are four elements that explain this boom. The first is the great development of technology at all levels, followed by the easy, growing, and massive use of cell phones, the change in consumer behavior and the loss of fear -without turning back- of technology, and the high level of financial exclusion, which in the region exceeds 50%.
“Unlike a bank that concentrates several financial activities provided simultaneously in a physical form, the FinTech model focuses on specific and specialized services such as transfers, payments, remittances, currency exchange, online loans, crowdfunding, factoring, financial consulting, operations with crypto-assets, etc.,” explains Simon.
The FinTech model does not use cash; services are 100% virtual. The client’s physical presence is not required to provide financial services. These solutions make it possible to expedite payments, grant loans, and intermediate liquidity needs by offering financing.
With a mix of technological solutions for identity, validation, credit risk, and anti-fraud systems, FinTech companies implement their businesses with reduced risks and generate public confidence. Their flexibility and light infrastructure allow them to easily adapt to market needs. And one highlight: Their focus is financial inclusion. They want to reach the unserved consumer, especially the informal ones who need urgent help, as they represent a large part of the Economically Active Population (EAP) and are generally not within the priority public policies.
In this process, the new role of banks stands out. Many have jumped on the wave and are developing FinTech alliances and initiatives. The future here is that alliances and integrations between banks and FinTech companies will be strengthened, prioritizing the generation of value in favor of the user and the industry as a whole.
Around this phenomenon are emerging figures such as “neobanks,” which is the union of a FinTech and a bank to provide financial services; and “banking as a service,” which allows banks to enable their platforms so that FinTech companies can develop financial services for their customers.
An example of the accelerated advance of this phenomenon is the so-called “Unicorns,” which are FinTech companies that have become multi-Latin companies valued at more than one trillion dollars.
“These are companies that, through technology, preferably serve the excluded population, providing loans to micro and small businesses that were not able to access them due to lack of credit history or to people who did not have a bank account, but who needed to make payments and transfers on a daily basis and can now do so from their electronic wallet built into their cell phone,” says Simon.
For the financial innovation brought by the private sector through FinTech to generate trust, it must be accompanied by the necessary legal tools to achieve priority objectives. Among these are increased financial inclusion, the promotion of the formalization of the economy and, progressively, the halt of the use of cash to reduce illicit activities.
Simon assures that “the ideal route to regulation is one that is participatory, co-creative and that draws from the FinTech industry itself, in public-private roundtables, including experts and key stakeholders, as well as making evidence-based decisions.”
Companies, banks, corporations, startups, and Big Tech must continue to bet on putting the end consumer as their main focus, especially the unincluded.
Also, focus on devising solutions that generate value to the user and allow them to have agile services made and thought about the real needs of consumers.
They must also continue working on cultural change, talent development, technology, cybersecurity, risk management, and regulatory compliance, elements that will be key to generating more trust.