If there was still any lingering doubt over whether or not fintech is revolutionizing the financial services industry, recent news likely changed that. In 2017, venture capital investments in the fintech sector reached an all-time high of $27.4 billion. That’s an 18 percent increase from 2016.
As this blog has pointed out before, this particular tech revolution is unique from the perspective of geography. Ask the average person where they expect the majority of startups to emerge from, and they’ll likely name historically popular hubs such as Silicon Valley or major metropolitan areas like New York and London.
While companies based in these areas have certainly contributed to the rise in the popularity of fintech, experts also cite the industry’s growth in nations such as India when explaining why the value of global investments consistently increases each year.
Thus, it’s a good time to consider the potential long-term impact that fintech may have on the worldwide economy. The following predictions represent some of the changes this new industry may yield. No matter what part of the world you live in, there’s a very good chance that they will have a substantial impact on your daily life.
Creating a “New Middle Class”
Throughout the world, there are populations that economists refer to as “underbanked” or “unbanked.” These are people who make limited use of traditional financial services or who don’t use them at all.
There are numerous reasons why a person might fall into one of these categories. Limited access to financial institutions is a major one. Due to geographic restrictions, some people simply can’t take advantage of the services that banks offer. Others lack the education that is necessary to benefit from financial institutions. In the wake of the recent economic crisis, there are also many who don’t entirely trust banks.
Those who follow the progress of the fintech revolution have discovered that these products often help unbanked and underbanked people to gain access to financial services that they previously didn’t use.
Over time, these people find that they’re able to save, spend, and invest their funds more wisely. Some experts believe this will give rise to a “new middle class.” Members of this new class will contribute to the growth of their local economies, yes, but in an increasingly connected world it’s likely they’ll also trigger growth throughout the overall global economy
Scott Picken, the CEO of the real estate investment firm Wealth Migrate, puts it this way: “There are billions of people in the world who are not connected—so they’re effectively not in the economy… If we have 7 billion people on the planet and only 2 billion are economically active, what effect will it have if there’s a three-fold increase?”
An interesting question, one we’re likely to learn the answer to fairly shortly.
Changing the Regulatory Landscape
Again, fintech’s rise in popularity is in large part due to emerging markets. Fintech companies are going to act on this knowledge by targeting customers from those areas.
However, one obstacle to developing any successful fintech product involves navigating the regulations that all financial service providers are bound by. While this takes some effort to achieve, with help from experts it’s a relatively straightforward process when targeting customers who reside within your own country. The regulations you must navigate apply directly to both your business and customers.
That isn’t always the case in emerging markets. Fintech startups in such countries (or startups targeting users in those countries) aren’t bound by the same regulatory framework, which can make it difficult to not only attract new customers, but also to ensure that your products work for them when they try to sign up.
Some believe this truth will spur further investment in the “regtech” industry. Simply put, regtech involves simplifying regulatory processes for fintech companies and their customers. Over time, an increased focus on regtech could alter the overall regulatory landscape.
Creating New Customers
Across all industries, successful companies tailor their products and services to meet the needs of those who can afford them. That’s why few organizations directly serve unbanked and underbanked people. These populations often lack the funds to buy those products or services.
That will change if fintech does give rise to a new middle class. In the not-too-distant future, emerging markets may dramatically expand the list of target audiences and customers that organizations consider when developing their products. This will impact how countries across the globe do business.
In other words, even if you don’t use a single fintech product (although the odds are very good that you do, even if you don’t realize it), this revolution is still going to have an effect on your life. Those who follow its development will be the ones who will be most likely to benefit from it.