Fintech is the short form of financial technology, an innovation that has received global acclaim in the investment and peer-to-peer lending platforms, among other sectors. The concept behind this innovation is to achieve incremental innovation without disrupting the existing business models. For example, modern peer-to-peer lending allows users to access capital more easily through trustworthy platforms. A while ago, this form of lending was fraught with difficulties as users had to go through rigorous verification processes. It left banks as the only go-to entities when borrowing money. With fintech, peer-to-peer lending has transformed into a de facto bank where users can borrow money and lenders can earn interest. Various factors have propelled the dramatic growth of fintech in the market:
The financial crisis that has caused customers to be more price sensitive
Internal problems experienced by established players, e.g., new regulatory rules, low-risk taking capacity and lack of lending stock to sell to customers.
Changes in the target population; a majority of the population is made up of millennials who are open to switching banks within 90 days.
Surging growth of small businesses that are made up of freelancers
• Increasing adoption of a ‘mobile first’ mindset among technology companies
• Reduced costs through the adoption of fintech platforms by up to 4% because they don’t need staff, buildings or distribution facilities
All such and other factors have occasioned the dramatic increase of fintech platforms. It explains the introduction of more mobile payment apps, the use to blockchain as a means of making more secure transactions and the integration of big data in financial services to develop more customised services. Fintech innovation has also spawned significant changes in the way investors make investment decisions following the ban on a commission-based sale of investment products. The rationale behind this move was that financial advisors are inclined to sell products that give them higher commissions.
How Roboadvisor Aids in Investment Decisions
Robo advisors were introduced as a means of offering small investors a low-cost means of obtaining investment advice. The platform uses an algorithm that asks the user to provide information that the investor would give to a financial advisor, i.e., expected returns, income, risk profile and the period of investment, among other features. The algorithm processes this information and generates a portfolio of prospective stocks or bonds that the investor can put his money in.
Other ways Fintech Has Transformed Traditional Investment Methods
A notable aspect about investing is that only a few people engage in it; the larger domestic base is often ignored. Hardly will an average investor participate in investing in foreign markets without using EFT to monitor the performance of the stocks or bonds in the international markets. Fintech makes investing in such platforms easier by eliminating the need for intermediaries and reducing the fees. As such, the average investor can buy stocks from anywhere in the world- Europe, Asia, Australia or Tokyo stock exchange with the click of a button.
The Emergence of Crowdsourcing Ideas
Research findings by the Massachusetts Institute of Technology reported that crowdsourced ideas from investment based blog networks and social platforms like Twitter boost the returns of an investor. As such, the modern investor is more likely to rely on discussions on Stocktwits or SeekingAlpha to buy or sell a particular stock instead of a financial advisor.
