Fintech arose in response to the global financial crisis and now holds a significant position in the financial services sector. The global Fintech business is expected to increase by 24.8 per cent to $309.98 billion in 2022, from $127.66 billion in 2018. They have indeed disrupted financial services and also contributed to the rise of open ecosystems.
Today, we will decode the building of open Fintech ecosystems.
What is an open Fintech ecosystem?
An open Fintech ecosystem functions like a laboratory where organisations test new ways of operating. They monitor this experiment and when successful, others adopt it.
In these open ecosystems, multiple organisations/parties collaborate to achieve a common goal – a happy customer. They exchange clients’ internal and external data to offer a seamless experience and the finest possible service.
Payments, lending, wealth management technology, insurance technology, regulatory technology, and so on are the key parts of a Fintech ecosystem. They come together and interact for the customer’s benefit. This also leads to economic growth and social inclusion.
The role of Fintech in the development of open Fintech ecosystems
Fintech firms have completely transformed the financial services industry. They have altered not only the way people and organisations conduct business but have also made a range of services available that were previously inaccessible through standard banking channels. It’s no surprise that, amid the slowing economy, Fintechs continue to grow at a double-digit rate and generate high volumes. For example, the value of Fintech transactions in India is predicted to increase by 20% to $138 billion by 2025, from $66 billion in 2019.
Let’s look at some of the consequences and offshoots of an open Fintech ecosystem:
1. Financial Inclusion And Democratization
Fintechs have extended credit to the unbanked and underserved.
As a result, 1.2 billion people in the world have gained access to financial services. This has reduced the number of unbanked people to 35% (worldbank.org). Even though they don’t have a bank account, anyone from a vegetable vendor to a milkman can make digital transactions. Fintechs have democratized the financial services which were earlier a privilege of few. This has also contributed to the growth of the economy.
Fintech’s emphasis on technology has allowed diverse parties to collaborate and provide customers with value-added services.
Today, banks, insurance firms, merchants, and other businesses unite on a single digital platform to give their clients customized solutions.
3. Low-Cost Financial Services
Offering financial services to the unbanked is expensive. This has prevented traditional players from providing services to the underserved. Fintechs, on the other hand, have developed digital lending platforms that offer MSMEs low-cost credit. Small businesses without credit history or financial records can now easily avail of collateral-free loans. Fintechs continue to create tailor-made solutions for the MSME sector utilizing data analytics and other technological resources.
4. A Catalyst For Digital Transformation Of Banks
Fintechs paved the way for the banking industry’s digital transformation. They compelled banks to give up the traditional approach and go digital to serve customers the way they want to be served. As such, banks are now looking for new methods to engage their clients and grow their market share.
5. Global Connectivity
The world has become a global shop, thanks to technology and innovation-driven Fintechs. Business is nowadays conducted globally by large, medium, and small firms, since the ease of transactions is facilitated by Fintechs. This has led to global connectivity which multi-national institutions and major governments were unable to achieve.
6. Streamlining Complex Systems
Fintech thrives on challenges and sees them as growth opportunities. This hunger has made them develop easy solutions for intricate operations. As a result, they have created modes of transactions for end users which are both quick and secure.
7. Provide Customers 24/7 Services
The rise of Fintech benefits both the parent country and the entire global community. It has a worldwide influence when countries enhance their digital infrastructure. For multi-currency transactions beyond borders, there are now easy financial options available. This is advantageous to the customer, who has access to services 24 hours a day, 7 days a week.
8. Increased Cross-Border Trade
People now sell and buy goods from all around the world. Fintechs’ creative and well-integrated solutions have made this possible. International trade is anticipated to hit $156 trillion this year, according to a report.
9. Establishment Of Shared Infrastructure
API (application programming interface) has enabled businesses of all sizes to connect and collaborate. This has led to the formation of an ecosystem through which they can interact with each other and provide value to the user. As a result, a shared infrastructure that benefits both the stakeholders and the customers has been created globally.
10. Customer Benefits
All of the aforementioned aspects have helped the customer to be the king. They no longer have to go through the maze of financial services to find the one that fits them. There are services tailored to their needs. Moreover, they can further maximize their experience through deals and rebates offered by other industry players.
Fintechs have made available a plethora of services unheard of to the common man. And will continue to do so in the future. In the process, they will further enhance and enrich the open Fintech ecosystems.
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