The Geopolitical Landscape of Digital Financial Technologies
The rise of financial technologies, or fintech, over the past handful of decades has shaken the foundations of the global economy. These technologies are literally opening up doors for hundreds of thousands of new innovations that are altering the way economic business is done all over the world. Faster connections, new payment methods, and great transactional security are just a few of the major advancements.
Not only are advancements in fintech creating a plethora of opportunities for many new innovations, but they are also breaking down barriers to entry into the global financial power structure. In many ways fintech may be a great equalizer in that it has allowed players from every corner of the world to connect to a global audience.
The very financial landscape that many of us are accustomed to is changing rapidly. With that comes numerous geopolitical implications and the opportunity to shift control in financial markets and currencies. It also creates a multitude of new risks and illicit activities that could have much larger consequences.
Opportunities with Fintech
The concept of ‘fintech’ is a pretty broad one that can encompass everything from the digital marketplace to tech to help users better manage their personal finances to blockchain technologies used in million-dollar banking transactions. Advancements in financial technology can mean a local artist from Thailand can sell his or her products on a global market, or young adults using bitcoin to buy a major purchase like a car. But it can also mean a major bank can more securely and effectively transfer large sums of money.
In some developing countries, fintech advancements can provide a lot of different opportunities. For instance, it can profoundly help large portions of populations that are unbanked or have difficulties with the mass amounts of official paperwork required to use traditional banking services. This can help millions of people with limited traditional credit make the transition into digital or paperless payments using a fintech solution, a credit-based system.
Many experts believe that the advancements we’ve seen are really just the beginning. The future of fintech is bright and the sky’s the limit on some of the exciting developments. Some predict that new ideas in business-to-business services will be a hot spot in fintech development in the coming years, while others are focused on advancements in data management and privacy policies associated with fintech.
Equalizing the Financial Sector
On an individual level, fintech can be a great democratizer of finances. Unlike traditional banks, many newer fintech companies are able and willing to use alternative information to determine a person’s creditworthiness, which makes them more likely to offer loans to people that are unbanked or with limited credit built up. It is bringing hundreds of thousands of people into the economy that were previously largely excluded by the traditional banking system.
Globally, developing countries are likely to see some of the most obvious benefits of new fintech technologies. For example, fintech usage in Latin American countries has provided a number of significant macro-economic benefits such as increasing competition and inclusion in the banking sector. These benefits even stayed strong during the height of the COVID-19 pandemic when much of the global economy was slowing down.
Investment in fintech solutions can certainly help increase diversity and competition within the country, but it can also open the country to a larger world stage. For instance, many integrated technologies, when paired with cybersecurity services, can attract foreign investors and bring big business to countries that may not have ever had the opportunity to compete for it. ASEAN countries have put forth this effort and are collectively expected to see nearly $1 trillion in projected growth in that sector by 2030.
Managing Profound Risks
Of course, with all of these benefits comes a number of profound risks that many fintech experts believe we should all be watching out for. One example is the risk of money laundering through fintech services. The great flexibility of new fintech services that make them so alluring can also make them more vulnerable to being taken advantage of. The tech is designed in such a way that it can be especially challenging to identify shady financial moves early on and respond in a meaningful way.
Another impact that often isn’t thought of is the environmental impact of computing. Large-scale, cloud-based computing that many of the fintech software companies are built upon is extremely energy intensive. One estimate is that cloud service providers generate a larger carbon footprint in the United States than airlines do. All of this ultimately means that although we can’t necessarily see it, our digital livelihoods have a significant environmental cost associated with them.
None of these risks are easy to grapple with and manage. As with many of the advancements that make people’s lives easier, managing the risks associated with advancements in fintech will require innovative solutions. More and more people are connecting to the global fintech market in some way or another every single day. Ultimately this means that creative solutions are going to have to be a top priority for many fintech companies moving forward across the globe.
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