Why Every Company Will Become a Fintech Company: The Future of Financial Services

Why Every Company Will Become a Fintech Company: The Future of Financial Services

The financial services industry is undergoing a monumental change, with the rise of technology and innovation disrupting traditional models. One of the key driving forces behind this change is the concept of "infrastructure as a service," which is now making its way into the financial sector. Just as companies can outsource their IT infrastructure to cloud providers, they can now outsource their financial infrastructure as well.

So, what does it mean for every company to become a fintech company? It means that regardless of the industry they operate in, companies will need to have a core system that can handle their financial operations. This core system acts as a large database, logging where customers' money is and how it is moving around. Additionally, companies will need to integrate with various payment systems to enable their customers to access and utilize their funds.

A prime example of this is Propel, a company that serves millions of families on Electronic Benefits such as food stamps. Propel's founders, who have personal experience with this market, recognized the need for a financial services solution tailored to the specific needs of low-income individuals. By leveraging technology and partnering with financial institutions, Propel has been able to provide essential financial services to this underserved population.

However, the transformation of the financial services industry goes beyond just improving access and convenience. Banks, for example, are required to comply with stringent laws to prevent money laundering. They monitor numerous sanctions and terrorists lists worldwide, as well as scrutinize all transactions. This often results in false positives, where legitimate customers get blocked, and an overwhelming number of manual reviews. Shockingly, less than 3 percent of laundered money is actually caught through these measures.

One of the challenges in combating money laundering is that once banks become proficient at catching money launderers, the perpetrators find weaker points in the system to exploit. This cat-and-mouse game underscores the need for continuous innovation and collaboration between financial institutions, technology providers, and regulatory bodies.

To address the issue of fraud and identity theft, companies are finding unique ways to leverage data and technology. For instance, identifying fake identities and preventing fraudulent activities can be achieved by analyzing patterns and behaviors. By focusing on detecting anomalies in loan applications, companies can effectively stop this kind of fraud.

What makes this disruption in the financial services industry even more fascinating is the fact that there won't be just one winner and many losers. Unlike other large industry changes, where a dominant player emerges, the rise of fintech companies means that both traditional financial institutions and new players can thrive. Established brands are also entering the financial services space, offering customers more options and better services.

For consumers, this transformation brings about exciting possibilities. With the advent of new financial services companies and existing brands launching their own financial solutions, customers can expect improved services and tailored experiences. The competition in the industry will drive innovation, resulting in better products and services for everyone.

In conclusion, the future of financial services is centered around the idea that every company will become a fintech company. The rise of infrastructure as a service in the financial sector is revolutionizing how businesses handle their financial operations. This shift brings about both challenges and opportunities, from combating money laundering to providing inclusive financial services for underserved populations. To thrive in this evolving landscape, companies need to embrace technology, collaborate with partners, and prioritize the needs of their customers.

Actionable Advice:

1. Embrace technology and leverage it to streamline your financial operations. Adopting a core system that can handle your financial infrastructure will improve efficiency and provide better insights into your business's financial health.
2. Prioritize compliance and fraud prevention. Stay up to date with regulations and invest in robust systems and processes to identify and prevent money laundering and fraudulent activities.
3. Keep an eye on emerging fintech trends and partnerships. Explore opportunities to collaborate with fintech companies or integrate their services into your business to enhance customer experiences and stay competitive in the evolving financial services landscape.