The Impact of FinTech and Ecommerce on Financial Services

Technologies like FinTech (Financial Technology) and eCommerce are presenting more flexible and current approaches for securities, products and services, trading, and transactions.

In the following article, we will define and look at the benefits and developments of FinTech and eCommerce.

What is FinTech (Financial Technology)?

FinTech (abbreviated from Financial Technology) is software combined with modern technologies used by businesses that provide advanced and automated financial services. With the fast and innovative advancements in the domain of payments, mobile payments at your fingertips, and delivery to residential addresses, the way we manage our finances has completely shifted. Today’s customer has high demands regarding money transfer, credits, loan management, and investments, expecting everything to be effortless, fluent, secured, and scalable, and at best, not to be assisted by a person or the need to go to the bank.

Customers are increasingly adopting established bank products. Hence, business and commercial online banking have become more convenient, efficient, and easy to access and manage finances. Compared with conventional banking, a FinTech startup would operate more flexibly and fast in implementing new services based on the constant change of customers’ demands.

Mobile Payment apps, Blockchain, Cryptocurrency, Bitcoin, and Gemini are the best examples of FinTech. The range of FinTech services is expected to transform the market even more with the coming of AI and machine learning, and FinTech products will become an integral part of our digitalized life.

Practical FinTech

The most successful FinTech startups rely on the same instruments and share the same characteristics: they are built to threaten the competencies and challenges and eventually replace conventional financial services providers by remaining flexible in providing faster and better service.

eCommerce companies like Affirm sought and developed ways to eliminate credit card companies from the online shopping process by offering a way for consumers to secure immediate, short-term loans for purchases. Though interest rates can be high, Affirm provides a way to secure credits and credit histories even for consumers with poor or no credit. Similarly, Better Mortgage seeks to streamline the home mortgage process with a digital-only offering that rewards users with a verified pre-approval letter within 24 hours of applying. Home improvement borrowers linked with banks is what GreenSky seeks in order to aid consumers in avoiding entrenched lenders and saving on interest by offering zero-interest promotional periods.

Tala offers micro-loans for consumers with no or poor credit. Deep data digs into the smartphone for transaction history and seemingly unrelated things, such as what mobile games you play. Tala aims to give consumers better options than conventional banking systems, unregulated lenders, and other microfinance institutions.

Using different data sets to determine creditworthiness, the Loaner Upstart wants to make FICO (as well as other traditional and FinTech lenders) obsolete. Data like employment history, education, and whether a possible borrower knows their credit score to decide on whether to underwrite and how to price loans.

FinTech’s expanding horizons

Today, we have become accustomed to how institutions organize financial services and processes by offering various services but still under a single umbrella. These services entailed a broad range of traditional banking activities, from mortgages to trading services. FinTech basically unbundles these services into separate personalized offerings. Technology combined with such streamlined offerings enables FinTech companies to become cost-effective and actually cut down on costs associated with each transaction.

The mobile app for stock trading is one example, as it charges no fees for trades, and peer-to-peer lending sites like Prosper Marketplace, Lending Club, and OnDeck have announced the reduction of rates by using open competition for loans to broad markets. Loan providers for businesses such as Lendio, Kabbage, and Accion offer startups and established companies fast platforms to secure working capital.

Entrenched, traditional banks have become highly alarmed and invested heavily into becoming more like the companies that seek to bankrupt them.

A brief retrospective of the developments in FinTech

FinTech started to thrive in the 1990s with the advent of the Internet and eCommerce business models. In theIn the decade that followed, most banking systems were already wholly digitalized. Then, the Global Financial Crisis in 2008 emerged, resulting in the loss of the customers’ trust in traditional banking systems, and security and transparency became more critical than ever. The appearance of this shifting mindset and cloud computing technology has allowed for the invention of new customized solutions and standards, such as providing access to banking profiles, payment and transfer history, and automated currency conversion. FinTech companies’ main goal is services and standards with long-term potential.

Advantages

FinTech enhances the customer relationship directly and allows advanced banking and management systems; moreover, it incorporates Crowdfunding Platforms that act like financial shelters for small businesses, entrepreneurs, charities, and artists by enabling them to receive financial support without raising money from conventional investors.

Social change is another essential goal that many FinTech firms meticulously aim to reach by considering demographic and social needs. In developing countries, people are granted access to microfinance and digital lending platforms. Regions in Africa, Asia, and countries like India, areas with a high population density where there was negligence by traditional banking systems, are now enabled to use payment services.

The emergence of FinTech also disrupted the insurance industry (InsureTech), making it go online and transforming everything from policy handling to data protection to establishing tailored insurance.

Through the provision of algorithm-driven recommendations and customized portfolio management, without the necessity of human supervision, Robo-advising has disrupted the asset management sector.

What is eCommerce?

eCommerce can be defined as any form of online money transaction. One example of eCommerce is online shopping, which is defined as purchases and sales of goods over the Internet using any device. However, eCommerce also engulfs other types of activities, such as Internet banking, online auctions, online ticketing, and payment gateways.

This year 2020, eCommerce is expected to reach $4.135 trillion in sales.

eCommerce, i.e., Mobile commerce, is also a rapidly growing new branch stemming from eCommerce, and it is mostly existent due to the expanding market and adoption of the smartphone and its countless models, especially among millennials.

eCommerce – business models

The type of participants involved in the transaction is what makes the distinction between the eCommerce business models, and there are three different business models:

Business to Business (B2B) – is when businesses trade with each other i.e., wholesalers and stationery stores, selling equipment in bulk to companies in need and with a discounted rate per unit as a norm if it is purchased in bulk.

Business to consumer (B2C) – is a business model where merchants sell to consumers who buy a small amount of produce. Supermarkets are one example of the B2C model, and here, consumers buy their shopping weekly, but they would only typically purchase something in bulk.

Consumer-to-consumer (C2C) – is where consumers who buy something seek to sell this item to another consumer as they no longer use it.

Marketplaces like eBay and Craigslist make this possible, easy, and widely adopted worldwide.

What are the benefits of eCommerce?

It was evident that eCommerce was going to demonstrate explosive growth from its very start and would be able to maintain the tempo, and there is a precise reason for that. In fact, it was the development and the wide adoption of the instruments and tools – the computer, the Internet, and the smartphone that allowed eCommerce to happen. After the Internet became an essential requirement of everyday life, this directed businesses towards recognizing how to take advantage of the numerous benefits of eCommerce over conventional commerce. Let’s look at the benefits and explain:

Independent work in terms of time and location

eCommerce business doesn’t require one to sit in an office from 9 to 5 or commute daily. A laptop and a good internet connection is all it takes to manage your business from anywhere in the world.

Sell globally

Unlike an online store, a physical store will always be constrained to the geographical area it can supply. In contrast, an online store (or any type of eCommerce model) has a global market and can serve worldwide. One of the most significant advantages of trading online is shifting from a local customer base to a worldwide market at no additional cost. In 2020, $4,206 billion in online sales worldwide will only increase yearly.

Targeted marketing

With the ability to access and reach customer data globally and track customer buying habits and emerging industry trends, eCommerce businesses can stay flexible and mold their marketing efforts to provide a better-tailored experience and find more new customers.

Serving niche markets

Restructuring the business into a fully developed niche market can be extremely resourceful. By entering the global market, a highly profitable niche business without any further investment can be built by eCommerce retailers. Through the usage of online search engines, customers from any corner of the world can find and purchase your products.

Nonstop availability

The most important benefit of running an online business is that you can sell nonstop as it is open 24/7/365. This means a dramatic increase in sales opportunities; it’s a convenient and immediately available option for the customer.

Reduced costs

Operation costs are a significant benefit for eCommerce businesses. Because there is no need to hire sales staff or maintain a physical storefront, the most considerable eCommerce costs go to warehousing and product storage. And those running a dropshipping business enjoy even lower upfront investment requirements. As merchants are able to save on running costs, they can offer better deals and discounts to their customers.

Inventory management

Inventory automation is another great benefit of eCommerce businesses, as they can automate their inventory management using electronic tools to accelerate ordering, delivery, and payment procedures. It can mean saving up billions in operational and inventory costs for businesses.

Conclusion

FinTech and eCommerce are revealing a holistic transformation of how we do business. Furthermore, FinTech and eCommerce will give the freedom to create their models for profiting, purchasing, and selling. FinTech will become the online stock exchange, while eCommerce will become a nonstop selling and purchasing service, giving the ultimate customer the ability to profit instantly and without physical boundaries. Even more interesting is that Fintech will support eCommerce and vice versa, further developing both services.

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