Financial Technology or FinTech refers to the application of technology in the financial service industry. However, FinTech is not new and has been under the spotlight in the past years. Advances in technology and new business models have challenged traditional processes, products, and services by enabling faster, cost-effective, and engaging solutions.
Besides, the Fintech ecosystem has spurred technological innovation to obtain efficiency among financial marketers and systems while enhancing the overall consumer experience. But do you know what is a fintech hub and what are the key elements that help to create a successful FinTech ecosystem?
But before moving ahead, let me apprise you that you can check my previous writeups that include FinTech Trends and Role of Smart Contracts in Banking for a better understanding of Financial Technology.
Let’s get started with the basics!
What is FinTech?
FinTech is the integration of technology into financial service industry offerings to improvise and automate their processes and services. This term surrounds a fast-growing industry serving the interests of both businesses and customers in numerous ways. From insurance to investments, mobile banking to cryptocurrency, FinTech apparently has an endless range of applications.
The FinTech industry is vast and will continue to grow over the years to come. One of the driving factors of FinTech is that traditional banks have become supporters and adopters of the technology and are actively partnering and investing in FinTech startups as it is easier to give customers with the digital mind what they desire while moving industry ahead and staying related.
What is FinTech Ecosystem?
Collectively, financial service companies, Fintech startups, government, investors, financial institutions, and regulators form an ecosystem. All these players commit to innovation, spur the economy, promote collaboration to profit customers in the financial industry. The FinTech ecosystem is vital for the technological innovation that can make financial systems and markets more efficient while improving the overall experience for the customers.
However, establishing and nurturing an ecosystem of Fintech is difficult provided the level of sustained collaboration that is required by the government, entrepreneurs, and financial institutions. For functioning a FinTech Ecosystem properly, it is important that each participant accurately understand its role along with the benefits it will acquire from the involvement.
But what’s the hierarchy of the financial ecosystem and how can you make it work according to your needs?
Essential Participants in a FinTech Ecosystem
In a FinTech ecosystem, we will see four major participants that are important for its success, i.e., Government, Financial Institutions, and Entrepreneurs. How? Let’s check it out!
- Government is responsible for implementing and enforcing policies and a regulatory environment that will ease the development of the ecosystem. It also empowers the hiring of technology firms and financial institutions, and entrepreneurial activities while increasing the competitiveness of the country.
- Financial Institutions whether they are local or global banks, venture capitals, and private equity shops can contribute their marketing expertise and deep content to the FinTech ecosystem. Apart from that, these financial institutions can work on their innovation by building partnerships with FinTech startups. It will strengthen the position of financial institutions competitively.
- Entrepreneurs contribute disruptive and innovative technological solutions to the FinTech ecosystem. As an outcome, entrepreneurs benefit from having better access to expertise in marketing and financing along with a responsive market for innovation.
Fundamental Components For A Successful FinTech Ecosystem
The strength of the Fintech ecosystem depends on these fundamental components that comprise the building blocks for an ecosystem to thrive. These factors comprise talent, demand, capital, and policy regulation.
The capability to develop, attract, and retain talent in the key domains is vital for the success of the Fintech ecosystem worldwide. The domains I am referring to are finance, technology, and entrepreneurship who have expertise in financial services like understanding of products and services while looking for opportunities within the existing processes, the ability of software development to turn ideas into solutions, and identify commercial opportunities and bring together resources needed to convert ideas respectively.
Startups require access to capital for developing and growing their business ideas and can move to raise investment. Access to capital whether it comes from government, corporates or private investors is a key factor of FinTech activity across the ecosystem. Higher values and volumes of venture capital investment are important for a higher fintech activity level. Apart from the start and scale-up funding for Fintech institutions, investment is also needed to fund initiatives such as sandboxes, non-profit accelerators that promote collaboration within the ecosystem of FinTech.
Similar to other industries, demand drives supply in the FinTech space. Demand for fintech products and services can either come from other businesses or consumers. The more established the ecosystem of Fintech is, the stronger the Fintech market will be.
- Policy Regulation
Other factors impacting the success of the Fintech ecosystem are policy and regulation. Policies and regulations can both constrain or enable Fintech development within ecosystems. Regulators and governments should maintain a balance between effective competition and innovation. Successful companies need to balance robust control and government to manage compliance and risk with regulations.
Set Your Business For Success
The core of any business lies in the idea it was established with. It’s is beneficial to think outside the box and come up with meaningful yet unique solutions that you can offer in your business. To set your business for success, you need to determine what type of customers you want to serve, and what offerings you can provide. Also, you need to put accurate operations in place to ensure your business has the power that other startups lack. So, let’s check out some other factors affecting your Fintech ecosystem.
- Technology & Innovation
Fintech is not easy to progress into. One not only needs tons of ingenuity but also expertise to complete in a dynamic space. In an era when data and algorithm-driven financial services are fastly growing, blockchain and AI are at the forefront, you will have to understand the working of these technologies and put them into practice for yourself.
- Plan Your Funds
Undoubtedly funding is an important aspect of every business especially in fintech. It should be your top priority and the financial planning for your business should be spot on. Other than that, being a fintech company, you will be living in an ecosystem that has giant fintech entities and other companies with huge pockets. And to attract partners, investors or potential clients some funding in place is essential.
- Monitor Finances
Not just planning your funds but maintaining your finances are crucial to developing your business idea. And similar to other companies, you might also have pains in financial growth at the initial stage. You will have to face high-profit periods with a little bit rainy days. So, never neglect the financial status of your company as it can lead to the failure of your business.
- Maintain Organization Structure
For the success of the fintech company in the ecosystem, choosing the right legal form of the organization is highly important. Keep in mind that the tax liability and legal framework are determined by the structure of the organization. Hence go for the accurate structure that suits your business the best and avoid any unnecessary efforts later.