This article aims at briefly defining Fintech in a simple manner, stating some of the ways it has been implemented and discussing its future.
Fintech (Financial Technology), is any technological advancement in the financial sector. Be it in bookkeeping, budgeting, personal account management or money transfer. It basically involves a new way of doing things in the financial sector. One example is Mpesa. This is one of the most common ways to transfer money in Kenya. A few years ago, transferring money from one person to another involved a visit to the bank then packaging it and looking for a person who could deliver it to the receiver. A very long and insecure process. With the introduction of Mpesa, money transfer became a very simple process that took less than a minute to complete. It was a much better alternative (secure and fast) and its growth has been tremendous. Other services such as Mpesa include Airtel money and Yu Cash. All they require is just a sim card and any kind of phone. This is just one of the many examples of Fintech.
The Safaricom Mledger application is another implementation of Fintech. This app allows you to track how money flows in and out of your Mpesa account providing dates, the names and numbers of the people you made transactions with and analytics such as the total amount of money transferred over a certain period of time. It also shows you the current balance. Convenient, right? It is like one of those statements you get from the bank at the end of the month. Another Fintech example.
Online payment processing services such as iPay, Pesapal and JamboPay are a new way of making payments and transferring funds. They make it possible to purchase goods online or across the counter. They normally charge a minimal fee for each transaction just like Mpesa does. That’s how they make their money. The biggest company that offers such services is PayPal which has been in existence since December 1998 according to Google.
Banks have also not been left behind. Most, if not all, have come up with mobile applications that allow their clients to make transactions right from their mobile phones. These transactions initially required clients to physically go to the bank. That is not necessary today. In some countries, they even charge people for going to the bank. Crazy huh? But why go while you can do everything from your phone.
Speaking of banks, Mshwari is a big deal in that sector. It is a partnership between Safaricom and CFC Bank that enables a person save and borrow money using their Mpesa account. Registering is a really fast process and using it is just as simple. Your mobile number is your account number. Security is always going to be an issue in Fintech but Safaricom have been doing a great job at it so far with some key security feature.
One of the biggest advancements in Fintech has been the introduction of Bitcoin. It is an innovative payment network and a new kind of money. This digital currency can be used to buy physical goods and services. It has fast peer to peer transactions and the payments can be made anywhere worldwide.
The keyword when talking about Bitcoin is digital money that you store in your e-wallet on your computer or mobile device that you can use to pay for anything. One of the key advantages is reduced transaction charges compared to banks. It makes use of Blockchain technology to secure transactions.
Fintech relies heavily on data. Processing it into information and making it available to the relevant parties. Smartly filtering data and making it accessible is the name of the game.
Who uses Fintech?
There are four broad categories: 1) B2B for banks and 2) their business clients; and 3) B2C for small businesses and 4) consumers. Trends toward mobile banking, increased information, data and more accurate analytics and decentralization of access will create opportunities for all four groups to interact in heretofore unprecedented ways.
Its growth has been accelerated due to the wide spread use of smart phones and the popularity of the internet. Numerous number of mobile applications for budgeting, money transfer and account management have sprung up in recent years.
Future of Fintech
New applications and financial systems will continue springing up to replace the old ways of doing finance. There have also been start-ups coming up that offer loans in under 24 hours. Such kind of innovations should be expected as we move forward.
In Kenya, mobile applications just started picking up. There is still room for a custom built application for Kenyans to change the game. Just like Mpesa did.