Over the past few years, technological advances have provided new options for firms and businesses in the finance industry. The growth of financial technology, sometimes known as fintech, is a hot topic among the general public and policymakers.
The COVID-19 pandemic may have presented unique obstacles for the Fintech industry and the rest of the world in general. But there may have been a silver lining for digital businesses. As more companies and employees embrace the work-from-home culture, the demand for new finance options has skyrocketed.
Fintech solutions that support remote working, such as online money transfers, payments, enterprise solutions, and, anti-fraud have seen a considerable increase in use.
Four Industry Trends Driving Fintech Innovation
In the first quarter of 2021, FinTech companies raised $12.8 billion, a staggering 220% increase over the previous year. This inflow of cash has pioneered many new innovations and has taken advantage of the opportunities introduced by the pandemic.
RegTech: RegTech, or regulatory technology, is a type of technology that aids other FinTech companies and financial institutions in complying with regulations quickly and cost-effectively.
The demand for RegTech arose from the fact that the shift to digital financial services increased the risk of money laundering, data breaches, and other types of crime, pushing governments to tighten regulatory control.
However, compliance is only a side effect of RegTech. It ultimately boils down to safeguarding consumers and their money from fraud and hacking. As a result, businesses gain a competitive advantage.
Open banking: Open banking is a rising movement that allows banks to exchange information with FinTech companies and other financial institutions. This is accomplished using an application programming interface (API), which links a website or a mobile app to a bank’s database.
Account aggregation is one of the benefits of this initiative. Users may view all of their accounts from numerous institutions in one simple app, eliminating the need to log in to each one individually.
Open banking has a lot of benefits for financial institutions as well. Lenders can rapidly analyze a person’s credit risk by examining their financial records thanks to open banking.
As a result, lenders are able to charge appropriate interest rates on their loans. Borrowers, on the other hand, can rapidly compare loan and credit card companies to determine their chances of approval.
Biometric technology: Biometrics is the use of a person’s physical traits such as their face and fingerprints to verify their identity. The biggest advantage is that biometrics is nearly impossible to defeat because it relies on data points that are unique to each person.
Another advantage of biometrics is that it is already a widely used technology, with over 82 percent of users owning a biometric-enabled smartphone. However, the COVID-19 pandemic has pushed contactless payment techniques and biometrics further.
Biometrics are critical for contactless payments since they speed up transaction authorization.
Users can transmit payments by merely scanning their fingerprints instead of pulling out their credit cards or providing financial information. It is not only faster, but it is also safer.
Biometrics will eventually replace PINs and passwords as the primary way of authentication. Indeed, it has already expanded beyond cellphones to include physical cards. To combat identity theft, banks will likely adopt biometrics for verification procedures such as KYC procedures
Blockchain decentralized finance: Since the introduction of blockchain by Bitcoin in the early 2010s, decentralized finance (DeFi) has been a prominent issue. In simple terms, it’s a system that allows anyone to obtain financial services without going via a middleman such as a bank or a broker.
While digital money is the most visible example of decentralized finance, it is still a small portion of the entire picture. DeFi is a financial revolution that has the potential to affect every aspect of the industry, from insurance to stock trading.
Decentralization will have a huge impact on digital banking platforms because as it stands, a centralized approach is currently used by every financial institution on the planet. Banks serve as a trusted intermediary between two parties for borrowing and lending, as well as enforcing contracts when necessary.
Israeli Startups Dominating the Global Fintech Industry
According to Startup Nation Central, Israel now has more than 529 firms committed to the Fintech field. Israeli enterprises have received more than $3 billion in funding from venture capitalists all over the world. Because of their global effect, some of the top firms in the field have reached record levels of funding and valuation.
As part of its goal to modernize its marketplace, eBay has partnered with one of these startups to remove complications and provide a more streamlined payment experience for sellers all around the world. eBay sellers will benefit from faster access to funds, more flexibility managing multi-currency payments, and a wider reach by being able to list on numerous international eBay sites with the support of the startup.
Another startup is a leading global provider of data-driven personalization and customer engagement solutions for banks and financial services providers. Leading banks throughout the world use this startup’s unique AI software platform. The startup analyzes consumer financial data and behavior in real-time, with the data remaining safe and confidential within the bank’s environment.
One other Israeli fintech startup gives funding to employees of other startups in order for them to buy stock options. Employees receive funds to pay the costs of executing stock options as well as taxes. If there is a “liquidity event,” the investors who helped give the capital so they could accomplish that earn a return or a piece of the profit. The startup makes money by charging the investor an upfront fee on the day of the transaction, as well as any carried interest if the investment is successful.
Fintech is Changing the Future of Finance
Israel is a leader in innovation with the world’s highest number of startups per capita, ranging from tech to agriculture. The country cultivates a startup friendly culture, which has led to over 750 fintech businesses calling the startup nation home. The country’s startup environment includes more than $3 billion in funding for fintech businesses, two fintech accelerator programs, and even a bitcoin embassy. The country has been proven to possess a strong entrepreneurial backbone that complements its technological ecosystem.
Israel’s Fintech ecosystem can help lead the way to more innovation in one of the world’s most conservative sectors at a time when the wheels of capital must move as smoothly as possible to help overcome the obstacles of an increasingly separated world.