HOW WILL THE FUTURE ECONOMIC CLIMATE IMPACT THE FINTECH INDUSTRY
With FinTech growing rapidly, the impact the industry is having on the economy is unmistakable. Startups are changing the way people do business and the way banks lend money and provide customer service. However powerful the force of FinTech may seem, the world economy will always have a profound impact on the industry as well. It is important for stakeholders to consider how the future economy will impact FinTech in coming years.
MORE FINTECH PRODUCTS WILL FOCUS ON CREATIVITY WITH CREDIT SCORES
Differences in personal income equality will continue to rise in the future economic climate. This can have a devastating impact on people with little income and no credit store. Right now, it is estimated that 30% of Americans have no credit history. In Africa, 80% of people have limited or no access to banking due to a lack of credit. With no credit history, it is hard to get a loan and become a home or business owner, which only furthers the low-income cycle and widens the earnings gap. Innovators in FinTech will find that they have to continue to offer alternative credit scoring. Companies are getting creative by using non-traditional data such as rent payments, mobile phone usage, and social media behavior to gauge lending risks. This practice will only grow in the future and spread into the world of insurance and other industries where financial risks are calculated.
Making financial services available to more people can have an impact not just on the wage gap, but may help protect the environment as well. FinTech solutions in Kenya allow lower income individuals who lack a credit rating to buy clean energy. Normally they would have trouble securing utility services, but this way they find earth-friendly solutions with the added benefit of a pay-as-you-go model.
FARMERS WILL LOOK TO FINTECH FOR FINANCIAL SECURITY
The Earth’s natural climate might have more of an effect on the economic climate than you might think. In fact, many forecasts are ignoring the impact that climate change will have on the world economy. Included in the countries that stand to lose the most from climate change are the United States, India, Saudi Arabia, and China. These world powers greatly impact the global economy as a whole.
In 2018, the Federal Reserve Bank of Richmond reported that in the states alone, that for every one-degree increase in average summer temperature, economic growth decreases by 0.15-0.25 percentage points. Natural disasters arising from climate change are costly and threaten the land, air, and water of countries affected.
Since farmers are greatly impacted by climate change, FinTech startups that assist them will be vital to their financial stability. In India, smaller farms of less than 5 acres are contributing 80% of crop yields. Mobile applications are making it easier for these farmers to secure pay-as-you-go finance options or rentals for large equipment. Equipment owners can make money lending out their gear, so this is a win-win situation. FinTech companies are also using smart contracts and sophisticated weather tracking to offer insurance to farmers with a policy that automatically pays out in times of drought or disaster.
BANKS WILL ADAPT AND START INTEGRATING MORE OF THEIR OWN SERVICES
Currently, FinTech is dominated more by smaller companies and the larger banks are learning to partner or perish. The technology offered by startups is still very widely distributed. Companies are focusing on fine-tuning one solution to offer, rather than a one-stop shop.
In the future, look for larger institutions to search for more enterprise solutions and for FinTech to become more centralized as a larger part of big banking. This will be fueled by the demands of an economy where wealth gaps are widening and much of the population needs alternative solutions to financing and convenient banking on its schedule to fit the working class lifestyle. Also, as FinTech starts to face more strict regulation, banks absorbing companies that need assistance with compliance will be more common.
THERE WILL BE MORE FUNDING OPTIONS FOR FINTECH STARTUPS
As investors have become more private, the ability to track the behavior of venture capitalists has become more difficult. One thing’s for sure, though – many FinTech startups are funded by them. In our current global economy, there is no shortage of venture capitalists. With cryptocurrency gaining popularity, the power of investors is expanding globally.
This also brings another opportunity to FinTech startups, however. The ability to offer an ICO/STO can decrease the need to pitch to venture capital firms. This could spark a more competitive landscape as firms vie for position to make the best investments. This whole environment will mean that there will be more options for FinTech startup funding in the future economy as cryptocurrency becomes more mainstream and venture capitalists gain more liquidity.
Although the future economic climate is uncertain, what is clear is that FinTech will have to adapt to the changing environment. It will be interesting to see how FinTech innovation responds to a world economy that is in constant motion.