What Makes FinTech a Vital Element of the International Ecosystem?
By Elena Mesropyan for LTP
FinTech substantially contributes to economic growth and development
Payments segment within FinTech is a major enabler of economic growth. Electronic payments added $296 Bn to GDP in the 70 countries studied between 2011 and 2015, which is equivalent to the creation of ~2.6 Mn jobs on average per year over the five-year period, or ~0.4% of total employment. Each 1% increase in usage of electronic payments produces, on average, an annual increase of ~$104 Bn in the consumption of goods and services.
FinTech facilitates financial inclusion for disadvantaged groups of population
FinTech facilitates structural changes in the market, opening up opportunities for previously ‘invisible’ groups of population/financially excluded businesses with alternative approaches to creditworthiness assessment. FinTech lifts people from poverty with technology and democratizes financial services industry by boosting institutional efficiency.
FinTech brings the speed to innovation adoption and transforms the quality of innovation
Through competition and superior solutions, FinTech drives improvements in traditional financial services and promotes the replacement of legacy systems with innovative new solutions, which can offer benefits to consumers and other sectors of the economy.
FinTech builds a foundation for sustainability and ensures healthy growth of the business ecosystem
FinTech comprises the foundation of MSMB/SMB sustainability with solutions that improve cash flow, supply chain management and logistics. Electronic invoicing, open APIs, HR solutions, etc., enable businesses to easily expand capabilities, operate at a higher efficiency and a manageable scale.
FinTech curates the market and propels its structural transformation
FinTech-bordering industries such as AI, RegTech, EdTech, HealthTech, etc., transform market structure by replacing legacy elements and traditional business models with advanced solutions and more efficient models of business operation.
FinTech creates new value streams
The transparent and real‑time operation of FinTech innovations, such as blockchain and digital currencies, are generating new value streams – not just in financial services but across the economy. Following the opportunities, financial institutions launch own currencies/labs/projects to explore new revenue streams.
FinTech ensures operational transparency and better audibility
More digitized transactions support greater audit capability, transparency in payments systems and security by reducing risks, which leads to reduced need for regulation. In addition, digitized solutions provide data for regulatory authorities to drive meaningful insights on the results of regulatory policies and make beneficial adjustments to regulatory strategies.
FinTech facilitates collaborative culture among market participants
FinTech sheds international and cross-industry barriers to facilitate collaborative culture. FinTech also catalyzes the growth of the supportive ecosystem – dedicated incubators, accelerators, venture funds, regulatory sandboxes, etc. The industry serves as a glue for market participants to recognize the necessity in mutually beneficial collaboration for a larger good. FinTech created and facilitates the concept of open innovation.
FinTech sheds international barriers
Since technological innovation is quickly adaptable, FinTech erased/reduced national barriers for entry, fostering competition in international markets. A multitude of international FinTech hubs combined with startup supporting programs and regulatory sandboxes have expanded the market size for a given startup in particular country.
FinTech has grown into a financially massive and highly impactful industry
Investments in FinTech have grown exponentially in the past decade – rising from $1.8 Bn in 2010 to $19 Bn in 2015.FinTech startups have attracted $18.9 Bn worldwide in the first nine months of 2016. Moreover, some estimates suggest that ~$4.7 Tn out of $13.7 Tn of the traditional financial services’ revenue is at risk of being displaced by new technology-enabled entrants. FinTech has grown from a niche to an industry that has a direct impact on policies and institutional development strategies.
First appeared at LTP