The fintech boom is good: 3 reasons why

By Simon Torkington, Senior Writer, Forum Agenda , World Economic Forum

Over the past decade, the global financial technology (fintech) industry has experienced a surge in growth. Digital banking and financial services are proving transformative, both in developed economies and also in regions where billions of people have previously struggled to access banking services.

New research by the World Economic Forum, in partnership with the Cambridge Centre for Alternative Finance, shows growth has been driven by strong customer demand. The Forum’s 2024 Future of Global Fintech report surveyed 227 companies spread around the world. Some 51% of those companies said strong consumer demand for their services was the main driver of growth.

The global fintech industry is booming, with customer demand driving growth.

In developing nations, digital innovation by fintech companies has allowed entire economies to bypass the high-street bank system, and offer a multitude of options to people who would likely be excluded from traditional banking systems.

Bryan Zhang, Co-Founder and Executive Director at the Cambridge Centre for Alternative Finance, says fintech is “creating alternative instruments, channels and systems, for accessing credit, for getting a loan, for making a payment, for getting insurance products. The current financial system, which is very much banking-based, cannot reach all of the populations that need these vital financial services.”

In an interview with the World Economic Forum, Zhang singled out three ways in which fintech is proving beneficial.

1. Fintech opens up opportunities for female entrepreneurs

“We see clear evidence that fintechs in many parts of the world have expanded their customer base to cater for the needs of women entrepreneurs,” says Zhang.

By using digital platforms, women can access capital, engage in crowdfunding and manage their finances with greater ease, he says. This democratization of financial services is levelling the playing field, allowing more female-led businesses to emerge and flourish. Fintech’s emphasis on financial literacy and networking further equips women with the necessary tools for success.

2. Digital finance boosts small and medium-sized businesses

Small businesses around the world face persistent funding gaps but a lack of access to finance is a particular problem for small and medium-sized enterprises (SMEs) in emerging economies.

Zhang says digital finance is a game-changer for these SMEs, citing the use of alternative data that can be applied by fintechs to make business financing decisions. “Social media data, psychometric data, biometric data, or even FedEx or UPS shipping data … are important alternative data points that could be utilized to offer SMEs a very quick, robust, and accurate credit decision,” he says.

This alternative data strategy means SMEs now have access to a suite of financial services that were once the preserve of larger corporations. Digital payments, online banking and lending services are enabling SMEs to expand, innovate and contribute to economic growth.

3. Fintech offers banking services to people in remote communities

Mobile banking and digital payment platforms are bridging the gap for those far from bricks-and-mortar banks, offering essential services like money transfers, bill payments and savings accounts.

Zhang says that for the first time, fintechs are offering financial services to “people from lower income backgrounds, in rural and remote areas. So it’s fantastic to see fintechs striving to be more inclusive in the provision of digital financial services”.

Risk and regulation in fintech

The rapid expansion of fintech is empowering not just those in emerging economies but also in developed countries. By increasing access to financial services, supporting SMEs, and reaching remote communities, fintech is fostering economic development and financial inclusion.

There are risks, however. Consumers falling victim to fraud and scams is a key one, Zhang says, especially via social media. “A robust regulatory and supervisory framework” is essential, he says.

The Forum’s report found that 68 per cent of fintechs surveyed consider the current regulatory environment to be adequate, but that “a substantial portion find regulatory compliance challenging and the licensing and registration processes to be problematic”.

Zhang says fintech must “balance the need for growth, for financial innovation, with that of regulatory actions… and policy innovations.”

This article first appeared on website of the World Economic Forum.