The technologies underlying fintech point to a world of empowerment, access, transparency and efficiency. However, in recent years its history and the actors who execute it have not been in line with those values.
It's an important problem, because the world needs fintech to help address some of the biggest challenges it faces: adding and mobilizing capital, enabling the unbanked and underbanked, driving social mobility, providing stability to the system. financial, among others.
The question is: can fintech innovators and investors take advantage of the current economic moment? ¿.
Good technology, bad actors
Looking back, one of the frustrating things about the recent fintech explosions (cryptocurrencies, meme exchanges and FTX among them) is that many have involved applications and business models that have shown (and still show) a lot of potential to make a mark. positive difference.
One of the big lessons from the social finance backlash is that empowerment without education can do more harm than good.
Cryptocurrencies and blockchain, designed to provide transparency, trust and resilience in financial transactions, suffered a huge reputational blow at the hands of a company FTX, whose business model subverted all of those ideals.
The field of “social finance” – which should be synonymous with innovation in the service of financial empowerment – is today most widely associated with Reddit traders, Robinhood, and the GameStop short squeeze. Meanwhile, fintech founders receive little credibility by increasing the number of young people opening retirement accounts.
The greatest irony may have come when Silicon Valley Bank, once admired for having successfully backed more than 70% of all fintech IPOs Between 2020 and 2022, it was a victim of the first fintech-driven bank failure in the United States.
With all this, is it surprising that federal banking regulators have made even impossible For a fintech to obtain banking status?
Advancement of financial technology
To reaffirm their industry's birthright and associated reputation, fintechs would do well to take advantage of the current economic moment and focus on applications that mitigate the impact of inflation and financial uncertainty on workers and consumers. Here are three key areas where fintech can lead the way.
Make the economic cycle benefit more people
BNPL (buy now, pay later) is a way to give consumers more purchasing power at the online point of sale.
Other fintechs are resurrecting the old concept of a “reserve plan,” whereby consumers set aside money for an item they wanted to buy until they had accumulated the full purchase price. The same financial technology also allows employers to give their workers the benefit of the highest rates on the fly, allowing them to choose to transfer a portion of their salary (which they may not need immediately) directly into an account that pays 4 % or more.
For a worker who may not have a high-performing account of their own, this service can make a difference. Especially if they discover that they can't afford the item after all, they will have saved money and not triggered any of the predatory terms inherent in many BNPL services.
Redouble technology-based financial education
One of the big lessons from the social finance backlash is that empowerment without education can do more harm than good. Not surprisingly, many innovative fintechs (perhaps better seen as hybrid fintech/edtech) are creating better financial literacy and education models and technologies. This is something that schools often don't teach.
Innovative incentive models are often at the center of this new generation of players. Bustle, based in Austin, for example, is a technology company that works with financial institutions to promote financial literacy and wellness through short-form content. Its modular platform includes tangible incentives to make financial education and literacy accessible and rewarding.
Founded in Ghana and registered in the United Kingdom, the School of New Africa (SONA) is developing a gamified learning platform whose mission is to educate young people about African history, culture and language, while teaching them financial literacy.
The platform, supported by the producer-rapper Fuse ODG – has many built-in financial services, including one that allows children to progressively earn a parent-provided “allowance” by successfully working through learning curricula.
Make life easier for workers who feel financial stress
Workers may no longer be quitting en masse, but they are still under severe financial strain, which is not good for them and corrodes the success of their employers. At a time when across-the-board pay increases are not a widely available option, employers have other levers to pull. These include fintech-powered services that enrich the standard of living of workers in concrete ways, with services that empower them and eliminate some of the stress of everyday life.
Such services could include easy-to-use HR systems that offer better access to everything from “time cards” to promotions within the company. And they could include financial management tools and resources, such as more flexible payment terms. In the latter category, employers of some scale are ideally positioned to fight one of society's most persistent sources of economic inequity: unbanked and underbanked workers exploited by high-fee financial services providers.
Inflation has hit workers over the past two years, reducing their purchasing power and squeezing their monthly budgets. At the same time, home prices and rents have increased. Employers can ease the burden by providing fully functioning and affordable bank accounts, debit cards, and access to earned wages and early pay.
Access to earned wages is essentially a payment based on the task request for hours worked. Typically, biweekly or monthly payment periods are rigidly established to facilitate the company's cash flow and accounting. But for some workers, especially those in hospitality, retail, manufacturing, and skilled and unskilled trades, payment based on task request is a blessing.
All of these products and services are a far cry from meme stocks and digital bank runs. Some will be successful and some will not. But at this moment in our economic and social history, we cannot afford for fintech to be held back by those who would subvert the very values that their technologies seek to elevate.
