3 ways fintech companies are helping revive the entrepreneurial ecosystem
Financial technology or fintech companies began to emerge as a result of the deficiencies of traditional banking, offering competitive value propositions, simplifying with technology access to financial services such as payments, investments, remittances, savings, etc. Today with the COVID-19 pandemic, they are being the engine that reactivates the economy in the face of an accelerated digital transformation.
The disruptive potential of fintech companies has to do with their competitive characteristics and value proposition, superior to that of traditional banks: they simplified technology to offer the customer a simple, friendly and convenient interface, accessible at any time and place. This explains why in regions such as Latin America the sector has been reporting an increase in the number of fintech companies , where Brazil leads the list followed by Mexico, Colombia, Argentina, Chile, Peru, Ecuador and Uruguay among others in decreasing order, from according to data from the Inter-American Development Bank. In fact, in terms of risk investment, the sector has had the most capital invested in this region, far superior to Asia and Europe.
The reality is that fintech companies are reaching millions of underserved users who did not have access to financial services and at the same time traditional banking was not considering. That is why it is said that the deficiencies of traditional banking have provided an ideal space for ideas to develop and exploit to international levels. Before the COVID-19 pandemic began, the World Bank already estimated that 42% of the global population did not have access to a formal financial system.
In countries like Mexico, where the cases of contagion and the number of deaths from COVID-19 unfortunately continue to grow and it is within the three most serious countries, technology has become a strategic ally for many companies to adapt their business models and start a digital transformation. For example, e-commerce has accelerated so much that the growth of a few years was achieved in months. And it is estimated that there are more than three thousand nine hundred million people around the world in quarantine, according to Forbes .
In the latest report by the consulting firm Ernst & Young on the global adoption of fintech 2019, it was found that, in the 27 countries investigated, there are approximately 64% of active digital consumers using some digital banking solution. Imagine that every time you make an online purchase with one of your favorite brands you are using financial technology services without your knowledge. For example, e-commerce platforms such as Mercado Libre and Amazon have launched their payment processing services as part of their industry initiatives, Mercado Pagos and Amazon Pay. Shopify integrates different national and international payment gateways as it suits you on your page, most of which are fintech companies. As well as these examples we have identified three ways in which fintech companies are reactivating the entrepreneurial ecosystem.
1. With financial inclusion
Fintech companies, rather than coming to displace and replace traditional banks, come to include those with less access to financial services, that is, they increase the penetration of the financial sector as low-cost alternatives serving the most vulnerable segments of the population. One example of this is that 40% of fintech companies in the Latin American and Caribbean region serve as their main client small and medium-sized unbanked or underbanked companies, according to Finnovista . On many occasions, the internet has allowed financial services of this type of company to be taken to far corners that a bank would not reach.
2. Lower financial costs
The operating structure of these types of companies allows them to have a reduced cost structure and focus on customer service. Most interact with clients through digital platforms, reducing operating expenses generally associated with rent for offices, branches, service executives, etc. In the framework of the Amexcap Forum, specialists agreed that financial sector technologies help reduce costs to serve a part of the population that would not otherwise be able to access these services. I think that as an entrepreneur the range of alternatives is also expanded for when you need to hire some type of financial service, such as the clear example of payment gateways.
3. Increasing confidenceMuch of the growth of the fintech ecosystem can be attributed to the emphasis on improving the quality of customer service that for years has been a factor neglected by banks. It is not only having products of technological innovation that are disruptive but also guaranteeing that quality and the confidence when using them. Another problem is that, in many Latin American countries such as Mexico, cyber fraud occurs to a greater extent with more than 463 frauds every hour, according to Condusef. However, fintech companies have managed to overcome many of these barriers by learning to control risk and increasing the security of operations so that using their services are more reliable. Likewise, in Mexico there is a Law to Regulate Financial Technology Institutions or commonly called the Fintech Law , which obliges this type of companies to request authorization from the National Banking and Securities Chamber to operate and have security controls and protection of personal information. In some way, this sector, which has continued to grow in the face of the pandemic, depends on others to maintain itself and this shows that the collaboration between companies that incorporate financial technology services are generating income flow. As part of an effort to contribute to a better understanding of the fintech ecosystem, a group of researchers from the University of Monterrey and the Tecnológico de Monterrey have developed a survey focused mainly on founders of fintech companies and actors in the sector's ecosystem. If you meet the profile, we appreciate your response in the link and that you can share it with fellow entrepreneurs.