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Fintech is not everything - but it touches everything. This is probably the best way to describe the rapid speed at which fintech services continue their victorious march across the world and across every segment of the global economy. While the revenues that the fintech provides are astonishing, not everyone is happy with its swift growth. Chair of the Fintech Task Force and a Democratic member of the House of Representatives from Massachusetts, Stephen Lynch has warned that the existence of well-established tech giants and the surge of new ones poses a significant threat to the entire financial system and here is why.
Mr. Lynch pointed out that during the last five years, the percentage of loans issued by fintech has skyrocketed from 5 to a total of more than 35%. He carried on to say that the growth of the fintech sector might ultimately translate into a group of people that is already disadvantaged being even more marginalized due to the lack of understanding of how fintech services work or having limited access to the Internet. There can definitely be some truth to that statement - fintech giants are, indeed, mostly motivated by the desire to defeat their competitors and single-handedly dominate the market. This never-ending struggle has little to do with having the best interest of people in mind, however, it is definitely not new and not exclusive to the fintech industry. The solution to the market disparity across various segments of the economy is the existence of smaller players that act as a balancing factor in the battle of giant corporations.
The importance of small entrepreneurs in any industry cannot be overlooked. It is their existence that brings a constant flow of drive and innovation into the market that would otherwise develop quite slowly if it only relied on the triggers that were the by-product of the major players’ struggle for dominance over the market. Moreover, smaller players rarely have an ambition of staying small forever, and often rise as the new giant that can successfully contest the ongoing distribution of power within the industry. Finally, small businesses are capable of catering to those who, for some reason, cannot access the products and services that the major players provide. Let us illustrate this symbiotic relationship between the big and the small with an example from a specific industry.
The FX industry, which, coincidentally, relies heavily on the fintech tools and services is definitely faced with high levels of market disparity. The vast majority of the market is concentrated on MetaTrader4 (MT4) and cTrader electronic trader platforms. Amidst the ongoing struggle between those major two, many smaller, but nonetheless, competitive software, such as TradingView, find it extremely hard to gain their share of the market and occupy a specific and lucrative market niche. Of course, when comparing MT4 to TradingView, one can immediately see the advantages and disadvantages of each of these platforms. However, it is worth noting that well-established players such as MT4 have far more access to the tools for development, and their monopolization of the market cannot, therefore, be justified.
The history of cutting-edge technological advances tends to repeat itself. At first, the world is larger;y skeptical of it, and disregards it as something not worthy of its attention. After the new developments grow in size, and can no longer be ignored, the world becomes suspicious and deems it as a threat to the current order of things. Finally, the new technology infiltrates every sphere of everyday lives and becomes something that the world can’t imagine living without. Similarly, fintech was first treated with an ironic smile, and, after its rapid growth, is now regarded as a potential threat to the entire economic system, However, is this truly the case?
There are a number of clear benefits that come with the expansion of fintech, both for the individuals and national economies alike. On a personal level, people enjoy the smooth, rapid, and efficient performance of the financial operations that would otherwise take a significant amount of time and effort to complete. In a broader scheme of things, fintech can actually boost the progress of the countries’ economic growth. By targeting previously unbanked individuals, fintech is capable of remarkably increasing the total factor productivity (TFP) that would eventually translate into steady economic performance and growth. On top of that, the combination of higher efficiency of the financial sector and better capital allocation might just be the revolutionary recipe for success that the world was looking for.
As previously mentioned, the fintech industry is growing at an exponential speed, and such growth is further boosted by the outbreak of the global pandemic and consequent lockdown, which made traditional ways of performing financial operations unavailable. Such rapid expansion made legislators worldwide realize that the industry can no longer be overlooked, and the new, efficient, and comprehensive regulatory measures are required to ensure the security of fintech users and their funds. However, the new issue that the lawmakers will need to overcome is how to strike a perfect balance between customer safety and transparency and the fintech sector’s innovation and growth.
Following the announcement made by the Chair of the US Fintech Task Force, director of the Governance and Innovation think tank Brian Knight claimed that was industry truly needs less regulation and more opportunities for growth. He went on to claim that each state has a variety of regulations in place which makes it virtually impossible for the fintech providers to compete with traditional banks and forces them to make their services more expensive and less inclusive. Knight also called upon the Congress to revise state-by-state regulations and allow fintech to operate on a national level, hassle-free. While it is unclear whether the US high-ranking policymakers will make such a decision any time soon, it is almost certain that they will need to come up with some sort of working legislation that will both allow the industry to flourish and make it available for the wider customer base.