The global fintech sector is expected to be worth a staggering $310bn by the end of this year. That shows that while fintech is very much geared toward the future, cutting-edge technology such as artificial intelligence (AI), blockchain and cloud computing is already having a transformative impact on day-to-day business and people’s personal lives.
Fintech has always been disruptive and has the capacity to excite, innovate and reform. That is because, unlike traditional financial institutions, fintech firms have needed to take risks and leverage new technology to offer more accessible and affordable products and services. This is evident in how smartphones and apps have revolutionised mobile banking.
Income and VAT tax obligations
Fintech is transforming how owners of small businesses and contractors manage their personal finances in numerous ways. This has recently resulted in a significant digital push from the UK government’s tax authority, HMRC, which plans to make VAT and income tax obligations fully digital by April 2024. New software and apps from fintech companies have made digital record keeping more straightforward and intuitive for taxpayers while reducing the burden on HMRC.
To support the upcoming switch, the government is running a Making Tax Digital (MTD) initiative to help taxpayers get up to speed with submitting their tax submissions electronically. Central to this is MTD bridging software, a tool that creates a digital link between a business and HMRC so it can start submitting taxes digitally. This interim solution is ideal for those that need to meet MTD compliance quickly and efficiently.
Three-quarters of global consumers were using mobile payment transfers and services from fintech companies back in 2019, a figure that has likely soared since the pandemic, which accelerated the switch to a cashless society. Rather than venturing to physical banks to take out money, modern consumers are now well versed in managing their entire accounts within a single app. Many of these apps were built by forward-thinking fintechs such as Paypal.
It may come as a surprise that fintech adoption is higher in less economically developed countries. Though when you take a closer look, it makes sense. Many people in these countries could not access traditional banking for various reasons, but they can now use their smartphones for all their banking needs. Adoption rates are highest in China (87%), India (87%) and Russia (82%), but Western countries are catching up.
Banking expert Scott Belous says this is partly due to the customers demanding higher quality user experiences on mobile. He notes: “Their expectations aren’t set by the experience they have in other financial services. Their expectations are set by what they see from the other apps on their phone.”
Fintech software is also helping consumers make better decisions about the money they can potentially generate and manage in the future. At the forefront of this trend is the “robo-advisor”, which can provide relevant and up-to-date advice in real-time. University of Pennsylvania law professor Jill E. Fisch says robo advisors are now a viable “solution to the complexities of financial decision-making”.
Robo-advisors are software programs that crunch through a mass of data to create and manage a customer’s investments. Rather than an investment newbie having to make uninformed decisions about stocks or real estate, they can instead rely on a robo advisor to make the best decisions possible, taking the emotional aspect out of it entirely.
Fisch says the taking action aspect of robo-advising is the key selling point as they don’t want the burden of managing accounts and keeping on top of new trends. She adds: They want somebody to do this for them. That’s the space … robo-advisors are going into.”
Blockchain increases transparency
Fintech firms are also democratising banking and money transfers in a way that the traditional system never could. This is due to the rise of blockchain, which allows digital ledgers to be created with complete transparency for transactions and assets. Fintech apps are using blockchain to provide genuine equality in financial services by creating a decentralised system that is truly open and global, unlike traditional financial instruments.
Eventually, fintech software could eliminate the “middleman”, the banks entirely, allowing users to make payments and access a wide range of other services seamlessly, potentially with digital currencies like bitcoin (BTC), which could be pegged against the dollar and other fiat currencies. The full potential of blockchain has yet to be realised, but it could soon become something people use daily.
These exciting developments are just a foretaste of how fintech apps can change our lives and transform business. As this technology matures, the capabilities and use cases for software will multiply. Associate professor R. A. Farrokhnia concludes: “In the future, finance will have more and more technology embedded in it.”