Let's say you want to go to the cinema or out for a meal but, first, you need assurance that you have the funds to cover the venture. A quick login to your bank account - via mobile or PC/Mac and, soon, you're off to have a good time. You might not think of yourself as a FinTech user but anytime you swipe or tap your debit card, log into mobile banking or buy something online, FinTech underpins the process. Most peopl e associate FinTech with blockchain and cryptocurrencies, and nothing more. Few consider FinTech's long history; plenty are unaware that FinTech began over 150 years ago. Thus, their knowledge, feelings and opinions of FinTech are based mostly on those two recent FinTech innovations. Often, those ideas are limited in the extreme and woefully under-informed. Today, FinTech is everywhere. The cash machine you pull money out of for that night at the cinema is FinTech; so are stock and cryptocurrency trading platforms. The Robinhood app that made such headlines earlier this year is FinTech, and one of the best illustrations of why financial technology is important.
|Why FinTech is Important:|
|1. It's accessible to all|
|2. It's secure|
|3. It's cheaper (albeit with a caveat)|
|4. It promotes financial capability|
|5. It provides data-driven financial solutions.|
The Finance Equalizer
Today, 31% of the world's adult population is unbanked, meaning that they have no bank account, nor do they use any type of financial service. You might think that is a matter of choice. After all, nobody is forced to have a bank account, right? In some cases, distrust of financial institutions and government - and, most recently, fears of inflation may lead some to keep their money under their mattresses but, overwhelmingly, the reasons for being unbanked are related to socioeconomic issues:
- by far, females are the largest percentage of unbanked adults worldwide
- the largest concentration of unbanked adults are found in developing economies: Latin America, Asia and Africa
- developed economies' unbanked generally cite lack of income or too low an income to warrant the need for banking
- many unbanked cite the lack of banking facilities close enough for them to access
- the unbanked in Asia generally report not knowing how banks and financial systems work as their main reason for remaining unbanked, even though they have access to banks
In today's FinTech-driven world, being unbanked has serious consequences. For one, it's harder to get a paycheque or pension, and pay your bills. More and more employers insist on direct deposit as a condition of employment an ever greater numbers of service providers expect payments via bank debits. Indeed, service companies have started attaching financial penalties to those who don't pay by bank transfer. Today, being unbanked makes it virtually impossible to function in modern society but that's not the worst consequence of being unbanked. One of the top reasons people remain unbanked is that they have no access to any banks. However, practically everyone on the planet, rich or poor, has a smartphone and internet access. This is how FinTech levels the playing field. Asia, and China specifically, has one of the larger proportions of unbanked people. However, widespread usage of digital wallets and money apps means that adult children living in the city can transfer money to their elderly parents who live in the countryside. Because systems like Alipay and WeChat wallet are widely used, even in farmer's markets, the elderly and other remote-area dwellers can have access to funds, even if they are far away from any bank or have no bank account of their own. This is one way that China has managed to raised millions of people out of poverty, in case you were wondering. Elderly, country-dwelling Chinese aren't the only ones whose lives have improved thanks to Fintech; the disenfranchised in the US know how to make FinTech work for them, too. Let's recall the GameStop stock controversy. A group of amateur traders, relatively new to the stock market, took advantage of more experienced traders selling the stock short. As a result of the youths' frenzied buying, the short-sell gambit backfired. The stock soared in price and the young traders made a hefty profit. Had it not been for COVID lockdowns, those young traders wouldn't have dallied around on FinTech platforms or dabbled in stock trading. In fact, they probably wouldn't have had time to learn anything about how markets work, let alone discover how to make it work for them. And there wouldn't have been a broker alive that would have had them as clients. However, in one fell swoop, these FinTech-savvy amateurs beat seasoned market pros at their own game, building wealth in the process. These two examples show how FinTech gives everyone access to financial tools. They're two great reasons to know everything you can about FinTech and how to make it work for you.
We hear all the time how hackers and breaches expose customers' data. And, as cryptocurrencies gain and ever-greater foothold, we're treated to splashy headlines about billions worth of cryptocurrency being wiped out or stolen. Those headlines sure are attention-getters but they're only a tiny part of the FinTech story. The fact is that FinTech makes the world of finance far safer. Reflect on the time before the telegraph made sending money safe. Getting money from one part of the world to another - or even just one city to the next involved stuffing cash into a paper envelope and hoping for the best. The envelope tearing en route or unscrupulous couriers intercepting the mail were frequent occurrences. Today, thanks to FinTech, you can send your loved ones money as often as you want without having to worry about anyone snagging your donation mid-transfer. You can whip out your bank card to pay for your purchases without having to open your wallet, making its cash contents visible to all. And, in these COVID times, paying by card is safe in more ways than one. Wouldn't it be awful to get the virus because someone handed you back a few quid in change?
The Cost Factor
It's not cheap to print money or mint coins, nor is manufacturing all of the items involved in money storage and distribution. If we were talking about a manufacturing concern, those costs could be written off as business expenses but that category doesn't apply to printing money. And the thing about money is that you have to keep on printing it. That calls for reserves of special paper and alloys for the coins, inks and counterfeit-deterrent devices like that security thread that runs the length of each bill. And, thanks to counterfeiters, governments must constantly update their currencies' designs, adding new security features such as watermarks and holograms. We're just talking about the end-product, here. We haven't said anything about raw materials, the processing plants, storage facilities, the equipment needed to make that money and the employees lucky enough to handle millions every day (but not getting to take any of it home). By contrast, FinTech's costs are far lower and better contained. The technology used by the financial sector is ubiquitous. The software that drives FinTech takes money to produce but they are mainly in labour costs; you don't have to worry about storage on a computer. As for mainframes that store all of those programmes and all that data? We're not talking about the Ferranti Mark I, here. Today's computers have more power and take up less space than ever. On the other hand... It takes quite a bit of electricity to run all of these electronic devices. And the server storage rooms have to be kept cold, lest the systems overheat and crash. And, if we're discussing Bitcoin - the name most often associated with FinTech, the power used to fulfil just one transaction rivals that of small nations. Overall, though, the savings - both money and time that FinTech makes possible moots any discussion of returning to the good old days of paper ledgers and money printers. We just need to address urgent environmental concerns; modify our power sources so that we speed towards climate change solutions ahead of transitioning to a fully digital financial system. Those in the industry know how pressing this task is; many cite it as one of the most rewarding reasons to work in FinTech.
Financial Solutions for Individuals and Businesses
Today, we're more connected than ever. The aforementioned Chinese grannies living in their old homesteads can receive financial support from their hardworking, city-dwelling kids, au pairs in the UK can send money to their families back home and anyone can raise money for a worthy cause or make a charitable contribution, all thanks to FinTech. Businesses can better forecast their financial futures based on the wealth of real-time data available to them. Indeed, they can branch out all over the world, partner with homegrown entities in other countries and reliably pay their employees, all thanks to FinTech. If we've learned nothing else from this Age of Information we're privileged to operate in, it's that anything - nay, everything is possible. The world is moving on. Even the sharpest minds wonder if FinTech is leading the charge or the visionaries behind global development are driving the need for constantly-evolving financial solutions. One thing's for sure, though: if you take courses in FinTech, you could be among those who decide the issue and keep the financial world moving.
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