Fintech's New Era: Profits, Perils and Limitless Potential What it takes to succeed in this now $7.3 trillion market, its risks and what the future of fintech looks like.

The global fintech (financial technology) market has exploded in recent years, partly attributable to Covid-19, which served as a compelling motivator towards digital and contactless payments. Innovations like digitized money and mobile wallets are now used ubiquitously. Fintech's total global market reach in 2020 was valued at $7.3 trillion USD, (according to Research and Markets) and is forecasted to grow at a compound annual rate of 26.87% in the post-Covid period.

As the global economy moves from "respond" to "recover," novel opportunities are arising for fintech companies. Increased receptivity to technology-based solutions puts the sector in a good position for growth and expansion, but there are key questions to consider before launching or investing in a fintech company. Among them are what does it take to succeed in this increasingly saturated (yet still nascent) market, what are the risks, and what does the future of fintech look like?

Already infiltrating front, middle and back-office operations within the financial industry, AI applications are the linchpin of many enterprises. Indeed, banks that embrace an AI-first mindset not only increase their chances of staying relevant, but are also more likely to increase revenue (through the personalization of customer experience and lower costs due to automation and reduced error rates). In fact, it's estimated that global banks have the potential to generate up to $1 trillion in additional value annually through AI technologies, according to McKinsey & Company.

Related: The Rapid Growth Of Fintech: A Revolution In The Payments Industry

Why user experience is key

If keeping ahead of the technological curve is paramount for a company in the fintech industry, so is keeping the user experience (UX) simple. Making platforms and apps as user friendly as possible is indispensable for businesses in this sector. If users are constantly having to deal with quirks, bugs and errors, there's little to no chance they'll stick around.

Leveraging technology to create a thoughtful and effective product is therefore critical for customer retention, but so is retaining a human element. Overdoing automation inhibits building a personal connection with a customer, and therefore prevents the formation of a trustful relationship. An app may be well thought-through, but still sterile. Creating a warm human experience is vital.

Insofar as the UX should be clear-cut, so should be the project's mission. According to Matt Cohen, the CEO of GRAND, "The best apps can be described by almost anyone in under 10 seconds." Doing away with the frills and instead providing a straightforward and functional product can help build trust with the customer, which is an essential when personal and financial information is being disclosed. Likewise, being able to respond to changes in consumer sentiment or market regulations will help a company come out on top. Showing a willingness to adapt to changes in this somewhat volatile industry is crucial.

Related: 7 Things to Consider Before Launching a Fintech Startup

Finding a niche

Each month, dozens of startups enter the fintech market, with Statista reporting that their worldwide quantity increased by 72% between 2018 and 2020. Not to mention, global banking giants are constantly upping their technology game, to the point where 96% of buyers across the world have a fintech app on their phone. Getting your foot in the door then, can be a sizeable challenge. You're not going anywhere if you haven't found your niche — never mind having to address regulatory requirements, which can be onerous.

Role of cryptocurrencies

Digital currencies are occupying an ever-larger part of the fintech industry. By the end of 2021, the top 100 companies in that sector had a combined valuation of $1.82 trillion USD. And what was the valuation of the top 100 cryptocurrencies? Around $2.44 trillion USD. This disruptive crypto model shakes traditional financial systems: Not only does it reduce high fees and the risk of fraud, but also offers a more transparent and efficient payment method. Indeed, acceptance of cryptocurrency into a business model expands its scope into international markets. It presents a unique form of fintech, with an ability to reshape every vertical of the financial sector, from lending and payments to trading and investments.

Related: 5 Things to Know Before You Invest in Cryptocurrency

The risks

There are core technologies that enhance financial transactions and systems, including AI, big data, security, internet of things, cloud and blockchain. Blockchain systems are a durable, secure and reliable means of storing data and are an increasingly implemented technology in financial transactions. Associated networks like Ethereum enable true decentralization, and with support for smart contracts. In fact, according to Deloitte's 2020 Global Blockchain Survey, more than 36% of enterprises are willing to invest $5 million or more in this new technology, perhaps due to the superior level of data quality it provides.

As much as this decentralized system offers enticing features, it also poses some risks. Concerns over privacy are somewhat ubiquitous among associated enterprises. Revealing sensitive information weakens their competitive footing, and thus threatens performance. Equally concerning is that private account keys are impossible to recover, so if users were to lose it, they would lose access to their funds. Furthermore, with a lack of regulation in certain blockchain technologies, there's an increased risk of initial coin offering (ICO) scams, particularly with respect to cryptocurrencies. As such, if you're considering implementing blockchain technologies in your business or investing in one that already uses blockchain, it's crucial you take these concerns into account.

Related: What's on the Horizon for Payments and Fintech in 2022?

The fintech sector is a fertile ground for innovation and change, constantly reshaping the sphere of business. It is truly the future of global finance, not least because it incorporates the crypto phenomenon. While we cannot foretell the exact future of this growing industry, one thing seems certain: The companies with a niche agenda and an adaptable and technology-first mindset stand a better chance at getting funding and succeeding.