The world is changing rapidly, and technology is leading the way. Financial technology, or fintech, is revolutionizing how we live and do business. According to E&Y research reports, the adoption of fintech services is growing faster than anticipated, making fintech an essential part of any future business. Penser analysis reports that 25% of small to medium-sized businesses have already adopted fintech services, while 56% of SMEs have used at least one banking and fintech service provider. 89% of businesses report that they are willing to share data with fintech companies. We can only wait for the others to catch up.
How does fintech work?
Fintech uses modern technology to automate and streamline financial services, providing more efficiency and control for both individuals and businesses. For example, it uses Application Programming Interfaces (APIs) to connect with other financial institutions and platforms, enabling seamless transactions and transfers, and big data analytics to gain insights into customer behavior and preferences, as well as to improve risk management and fraud detection. Fintech also uses cloud computing technologies to store and process large amounts of data securely and provide services to customers remotely. In the future, it is expected that blockchain, AI, and machine learning will also play a big part in fintech, analyzing large and confusing amounts of data.
In this blog post, we will explore how fintech can improve your business, reduce its costs, attract more clients, and give its customers more control and understanding of their own finances.
Here are four major areas in which fintech can improve your business:
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Payment processing
One of the most significant advantages of fintech is its ability to offer fast and efficient payment processing solutions. Here are three main ways in which fintech simplifies payment processing for businesses:
Digital payment systems
Fintech companies offer digital payment systems that allow businesses to accept payments from customers electronically. These systems can include mobile payment apps, online payment gateways, digital wallets, and other digital payment solutions that make it easier for businesses to accept payments from customers. Stripe, PayPal, Square, and Payfirma are some of the most popular solutions. For example, Stripe is a payment processing platform that various companies use to accept payments, send payouts, and manage their businesses online. PayPal, on the other hand, is a digital wallet that makes it safe for customers to shop online and allows businesses to earn more money through their e-commerce websites.
Payment processing integrations
Many fintech companies offer payment processing integrations that allow businesses to accept payments through a variety of channels, such as online marketplaces, social media platforms, and e-commerce websites. These integrations can simplify the payment process and make it easier for businesses to reach customers through multiple channels. For this reason, e-commerce businesses are the most active in adopting fintech solutions.
Virtual credit cards
Fintech companies offer virtual credit cards that can be used for online purchases. These cards can help businesses reduce the risk of fraud and provide an additional layer of security for online transactions. For example, Revolut offers virtual credit cards to consumers so that they can shop online freely, without having to think twice about the risks online shopping entails.
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Accounting
Time & resources
Fintech automates many of the accounting processes, allowing businesses to save time and resources. For instance, with the help of fintech tools, businesses can automate tasks such as bookkeeping, invoicing, and payment processing, and help with financial risk management (see Elinext’s case study). This reduces the workload for accounting professionals and allows businesses to hire fewer people. No need to panic for accountants, however: with the help of fintech, accountants can spend more time evaluating financial data, analyzing the growing amount of data and sharing their insights with the customers, and advising them on the best course of action. With fintech tools, accountants can make better judgments, as fintech provides real-time data on various parameters, such as cash flow, revenue, and expenses.
Accessibility & accuracy
Fintech improves the accessibility of financial data and decreases the risk of human error. For example, tax calculations, filing, and payments can be fully automated resulting in no possible risk of human error. With the advent of cloud computing, businesses can also store their financial data in the cloud, making it easily accessible from anywhere and at any time.
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Cybersecurity
Fintech solutions provide affordable cybersecurity for businesses of all sizes and automatically ensure that the risks are kept to a minimum. This is extremely important for small and medium-sized businesses, as they often don’t have funds to manually built their cybersecurity processes.
Here’s how fintech ensures businesses are safe online:
Improved authentication
Fintech offers better authentication methods, such as biometric authentication, that are more secure than traditional password-based systems.
Fraud detection
Fintech uses artificial intelligence and machine learning algorithms to identify and prevent fraudulent activities.
Data encryption
Fintech companies offer secure data encryption and storage solutions that protect sensitive financial information from cyber attacks.
Compliance
Fintech companies can also help businesses stay compliant with regulatory requirements, as all fintech companies must comply with industry security standards, like the Payment Card Industry Data Security Standard (PCI DSS), to ensure their customers are protected from fraud and cyberattacks.
Cybersecurity education
Finally, fintech companies can provide cybersecurity education and training to help businesses understand and mitigate cyber risks.
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Customer engagement
Fintech can help businesses gain valuable insights into their customers by providing data about their behavior and preferences. This information can help businesses improve their marketing strategies, provide a more personalized experience, and identify new revenue opportunities.
Fintech solutions can usually be integrated with customer relationship management (CRM) systems, allowing businesses to manage customer interactions and data more effectively.
Finally, fintech can also help businesses create and manage loyalty programs that incentivize customers to engage with their brand. For example, businesses can use fintech solutions to offer rewards and discounts to customers who make frequent purchases or referrals. This is a sure way to improve customer retention and engagement.
What are the challenges of using fintech in business?
The benefits that follow fintech integration for businesses far outweigh the challenges. However, we won’t pretend that there are none of the latter! Here are the main challenges of introducing fintech into your business.
Cost
As one might expect, fintech solutions can be costly, particularly for small businesses. Firstly, businesses need to carefully evaluate the costs and benefits of fintech solutions to ensure that they are cost-effective. Secondly, not every company will be able to afford the fintech solution of choice when they are just starting out. While fintech can offer cost-saving in the long term, there can also be significant upfront costs associated with implementation and integration at the start of the process.
Regulatory compliance
Fintech operations are subject to various financial regulations and compliance requirements. Keeping up with these regulations can be challenging, especially for small businesses with limited resources. Adhering to legal frameworks, such as anti-money laundering (AML) and know-your-customer (KYC) regulations, can be complex and time-consuming.
Integration
Many businesses already have established legacy systems that may not easily integrate with new fintech solutions. Integrating fintech platforms with existing infrastructure can be complicated and may require significant investment in technology and expertise.
What is the future of fintech for business?
Fintech is rapidly growing and evolving, and just as with many other innovations, the COVID-19 pandemic has accelerated its adoption. In the nearest future, digital transactions are expected to grow significantly across all major fintech verticals, with more and more people adopting fintech.
Businesses follow: the global business sales on fintech applications are expected to reach $31 billion by 2029, growing at a 10.5% compound annual growth rate (CAGR) over the coming years.
As a result, both businesses and customers will continue to benefit from faster services and lower costs that come with financial software, as the majority of the transactions will be automated and the choice of fintech solutions will keep getting more broad, nuanced, and diverse.
