Understanding the Risks and Rewards of FinTech
The global transactional value of digital payments in 2020 was $5.44 trillion, an increase of 32% from the last year. FinTech applications for digital payments are multiplying as consumers move from cash to mobile mechanisms for purchasing products. This includes mobile wallets, e-wallets, UPI payments, amongst several others.
Changing customer behavior and expectations are the primary drivers of FinTech investment. People prefer the convenience and want to eliminate the hassle of carrying cash. Therefore, FinTech companies and enterprises are building solutions that enable people to manage money on the go.
But all is not hunky-dory within the FinTech market. While there are visible benefits of FinTech, there are also certain risks that make navigation difficult. This article will focus on the risks and rewards of the FinTech landscape.
Read more: Top 7 FinTech Trends you should know in 2021
The Rewards of Exploring the FinTech Market
FinTech firms provide a wide array of benefits to the economy as a whole. By bringing digital finance to the consumers, it is expanding the growth of the economy and enabling people to become a part of its financial community.
- Financial Inclusion
FinTech is key to help the so-called “non-banking” people become a part of the financial economy. They can afford credits, make payments, and demand the right contractual terms. FinTech applications aim to reach even those who wouldn’t have previous inclusions in any kind of finance.
- Economy Expansion
Cryptocurrency is one of the best FinTech examples that people relate to the expansion of the economy. The digital asset provides a way for users to invest in a new type of currency that also contributes to the overall economy’s growth if it is fairly adopted.
- Convenient Finance
FinTech business models are making finance convenient for people. Whether people want to invest in stocks, trade cryptocurrencies, lend money, or make digital payments — all is possible at the tap of a thumb. Finance has become easily available to all people without any problem.
The Risks Involved in the FinTech World
The FinTech industry has certain risks that are making people skeptical towards FinTech investments. Of course, there are regulations and compliances that guide the FinTech market. However, there are still risks to FinTech implementations that cannot be neglected.
- Data Protection
Cybersecurity is a big issue for the FinTech market. Data protection guidelines are in place, but the uncertainties of cyberattacks and vulnerabilities are still prevalent. There is always the risk of data getting stolen that could lead to disastrous outcomes and impact the FinTech industry as a whole.
- Lack of Clarity
Integration with modern technology like Artificial Intelligence and Machine Learning still poses a lack of clarity due to the absence of clear regulations. It could lead to losses, and glitches are hard to resolve. Improper understanding of AI will also slow the adoption of the technology in the FinTech market.
- Competitive Imbalance
FinTech would easily increase international competition when it comes to micropayments, digital lending, and more. It would eat up the market share of many incumbents who are playing in the market and regularizing their control. Cross-border transfers present competition to money exchanges as well.
The FinTech market is still emerging — no one can say what is next. Understanding the risks and rewards is important because it gives an idea about how to swiftly navigate through the industry.