Why all FDs need to know about Fintech

Buzzwords come and buzzwords go, but even as a newcomer Fintech is already promising to be more permanent revolution than fleeting frenzy.

The ‘financial technology’ industry is attracting billions of pounds of investment, and its innovations are altering the playing field for FDs of all sectors.

Fintech defined

Fintech, or financial technology, is the new wave of software, and in some cases the supporting hardware, which is making it easier, cheaper and more secure to send payments between parties.

This in itself should be of interest to all FDs, but what really matters, and why everyone is talking about Fintech, is the ripple effect of this efficient movement of finance.

When money flows easier, it opens business up to a larger and more diverse customer base. It also gives organisations a broader source of growth finance. It’s even breaking new ground in asset management.

How Fintech improves customer relationships

Many of Fintech’s biggest innovations in its early years have been opening up new ways for customers to pay for goods and services.

The ability to transfer money easily and securely online not only allows existing businesses to expand into ecommerce, but even many bricks-and-mortar establishments can employ the technology to accept payments around the clock, with no need to be walked through the process by a member of staff. And because many of the payment systems have their own built-in security, much of this aspect of legislative burden is shouldered by the Fintech suppliers.

Beyond online payments are payments via mobile phone, where customers are neither restricted by your organisation’s opening hours, nor by location. Individuals can purchase, subscribe, donate and more on a whim, walking down a street, sat in a cafe, during their commute or on holiday.

Advancements emerging from Fintech are also making it simpler and more cost-effective to transfer money across borders. Even businesses with favourable agreements with their banks find it costly to manage foreign currency accounts, exchange rate schemes or otherwise. But many Fintech products are universal, meaning it doesn’t matter which region the payment is coming from or going to.

Fintech is demolishing many of the barriers which restrict who businesses can deal with. Time, location and administration can become much less of a factor by employing products such as Square, Stripe, WePay and more.

It’s important for FDs to keep abreast of these developments, not because of the opportunities they present to their own business, but because soon these new ideas will become standard demands from customers. Organisations limited to old-fashioned and burdensome payment methods (from a customer’s point of view) will increasingly risk losing trade to their more tech-savvy rivals.

How Fintech is changing the face of investment

Most new-start or growing businesses need access to external finance at some point, usually loans and debt packages from banks or private equity investment. Fintech, which gives organisations access to a much wider customer base, is doing the same for investing.

The typical investment for some time has been one investment house investing a sizeable sum and taking a controlling share in return.

Crowdfunding, enabled by Fintech, allows a business to market itself online to an audience of millions. Interested parties can put forward as much or as little cash as they’re willing, and the business can accept as few or as many investors as is required to reach their goal.

Businesses can still give up shares in return, but more often, due to the much smaller scale of financial investment per person, individuals often get involved to receive early access to new products, personalised items or other forms of recognition.

Many FDs find that securing finance through traditional methods can be a lengthy process with low levels of success. Websites such as Kickstarter and IndieGoGo make it possible for a much larger variety of businesses – from all sectors, size and stages of development – to attain the funding they require.

The future of Fintech

Fintech has grown and evolved at a remarkable pace in just a few short years, and nobody can predict for sure which direction it will take next.

At present, attentions appear to be turned to asset management, and ‘robo-investing’, which means using specialist software, paired with Big Data, to learn trends, undertake research and automatically manage investment portfolios.

There may yet be intervention from financial regulators, as-yet-unimagined ideas may be about to be realised, but whatever the future holds for Fintech, it’s already made a huge impact.

Businesses have new ways of accessing new customers and whole new methods of securing investment for growth. FDs should be looking to embrace these new ideas or risk hampering their organisation’s development.