In simple words, Fintech is a set of tools or technologies that work toward supporting and enabling financial and banking services. It is an amalgamation of a different set of specialized software and data analysis to foster the needs of the growing economy of SMEs. Its welcoming approach toward Blockchain technology has eliminated intermediaries and provided greater transparency.
The Covid pandemic has brought a lot of new things to the world. Be it the virus itself, the vaccines, or the lockdowns. One cannot deny the rising impact of digitisation and Artificial Intelligence on our daily habits. This spark of opportunity resulted in an excellent boom for virtualisation. The need to go paperless has helped Fintech companies roar in the face of traditional lenders who are already plunged due to pandemic waves.
Features of Fintech
There are certain inbuilt features of Fintech that traditional lenders need to be able to cope with. To begin with, automation and digitisation have helped Fintech to appear and reach the far low or under-served niche of the economy. Growing businesses require capital, and Fintech is geared up for lending. New payment systems, cyber security, more intelligent assessment of creditworthiness, and mobility and analysing risk assessment are some of the extensions that are eye catchy and easily approachable.
Fintech, while simplifying the process of business transactions, has also provided portfolio management, which to date, has yet to be fully exercised by the traditional lenders of the market. To this extent, this has helped SMEs and underserved players in the economy to put their investments efficiently.
Small Business Lending Market
Small business market or Small and Medium Enterprises (SMEs) comprises market players with small yet profitable economic transactions. They play a vital role in the development of the economy, especially the developing ones. According to the Organization for Economic Cooperation and Development, SMEs account for nearly 60% of employment in developed countries. Therefore, it is imperative to support and boost this sector of the economy, which has been facing financial constraints in producing innovation. The research by Easyknock suggests that the big banks rejected more than 80% of small business loans in 2019. The seeking amount, sometimes too low for the banks to consider the financing profitable, ended up being rejected.
Reasons Why the Traditional Lenders are Lagging
Traditional lenders such as banks and private lenders are facing the critical issue of lending transaction cost and time compared to Fintech. Banks often neglect the underserved or economically unfit players to fund their enterprises; not to forget, the increasingly cumbersome paper procedures, tax returns, and plethora of documentation to meet the requisite benchmark set by the banks are always troublesome for young entrepreneurs.
Private lenders in the market often practice higher interest rates in return for quick money but are always sceptical about the character of the business in the market. Mouth and induced goodwill often play a huge role, which the SMEs and young entrepreneurs often fail to arbitrate.
Post-pandemic, both banks and private lenders had a dual hit. On one side, it generated backlog and labor shortage simultaneously, causing havoc among the institutions. On the other side, customers are slipping away because they have solutions on their phones, i.e. Fintech. Multiple digital applications provide financial assistance to SMEs and other segmented consumers at their fingertips who are availing credit facilities on instant occasions.
Fintech is the Most Critical and Disruptive Industry.
Fintech is not only disrupting the small business lending market but is swallowing the entire segment by incorporating its compelling features into the traditional lending system of the country. It has spread its entangled web into the banking sector, medical aid, insurance sector, etc. Organisations are significantly accepting the notion of going paperless and fast pace procedures to adequately compete in the market. Furthermore, the Fintech industry is behaving more like the taxi-hailing industry, where a single application offers many services to the users. Another example of the diversified use of Fintech in the healthcare industry is Practo, a single digital application to provide all medical-related services under one roof.
The retail industry is most prominently watched by economists and has experienced unprecedented development in the pattern they traditionally worked upon. Fintech provides an omnichannel experience to retailers for routine transactions of their business.
Therefore, it is clear that Fintech is disrupting the small business lending market and engulfing the essential gap created in the economy. Various industries have also incorporated it to make procurement and placement effective to survive in this competitive market.
Latest Technology in AI and Data Analytics in Fintech
Lastly, one must understand the logistics behind Fintech, the driving force based on the Fintech industry is continuously developing and engaged in incorporating the latest upgrades, be it technological, hardware, etc. Fintech has improved point of sale compared to the traditional lending market because it reached consumers at their fingertips to gather essential data. Such data is then analysed and used to cater to many audiences. Additional factors such as increasing reliance on blockchain technology, AI-infused financial consumer strategy, cyber security, and digital-only banks are adding to the ever-growing research and development, which in turn help integrate Fintech more efficiently.
Fintech is the next-gen approach towards providing effective and efficient financial solutions. Today, it has captured the uninvited or unattended and segmented consumers, yet it holds the potential to diversify its use in multiple sectors. The fast-paced advances in AI mean that with time, the processing time will be reduced further, more appropriate developments will be incorporated, and newer forms of assessment will be established.
It is a perfect time to call for a more collaborative approach between both sides of the market, and it is inevitable too. For an economy to be on a smoother upward trajectory, all the parties involved must incorporate the rapid advancements in technology.