While the hype around Bitcoin and other cryptos has died down following the massive drop in prices over the turn of the year, there's no denying that digital currencies are reshaping fintech as we know it. Financial technology used to be about storing and managing money using a digital medium; nobody ever expected the money to go digital eventually, but here we are. With radical change comes a lot of advantages and some drawbacks. In this concise article, I'll analyze how cryptocurrencies have reshaped the world of fintech and what benefits they offer these companies.
Read Also: 10 Ways You Can Beat The Competition As A Creative Freelancer
The Benefits of Crypto to Fintechs
Cryptocurrencies have had several effects on the financial technology industry, with most of them being positive. Here are some of the biggest benefits of crypto to fintech in today’s world.
1. It revolutionized money transfers.
Transferring money across borders, especially to developing countries with access to virtually no international payment apps, has never been this easy.
The advent of cryptocurrencies changed everything. Now, fintech companies can offer international money transfers by letting you send the money through a crypto wallet instead of using the official methods of transferring money across borders.
The good thing about crypto-facilitated money transfers is that it's not only about cross-border payments. There is also a case to be made for the speed, the anonymity, and the reduced or nonexistent costs. Talking about costs, let's quickly jump into the next benefit of crypto to fintech companies.
2. It reduces the cost of doing business.
Setting up a traditional financial technology company isn't a piece of cake. Firstly, there's the huge workforce required to make it a success. From product managers to programmers and even customer support agents, the presence of so many moving parts makes the process costly.
If you also plan to facilitate money transfers across banks, you must devise a strategy to make that possible. In most countries, that would mean creating partnerships with banks, signing agreements, or in some cases, even getting approval to be a bank. For all of those to be successful, you need plenty of money.
The advent of cryptocurrency has made it optional to spend that much when setting up a financial technology company. You don't have to operate your servers or create partnerships with banks; as long as you have a few developers with experience building crypto products, you should do fine.
3. It gives fintech companies a purpose.
In times past, pretty much all fintech firms were wannabe banks. They offered the same services as banks but only made them digital and hence, more accessible. That wasn't a problem earlier on, but over the years, banks gradually caught up with the fintech companies, and it became a question of why.
Why should I use Chime to transfer money when I can do the same thing easily using the Bank of America app? With the advent of cryptos, however, fintech companies finally found a way to answer that question since most banks will only let you transfer in the official currency.
Popular fintech services like Binance and Coinbase are no longer wannabe banks; they now offer a different service from most banks in the country. Even popular wannabe banks like Cash App now allow you to transact in crypto, a significant change from when they were convincing everyone to move money from their banks to the app for no good reason.
Drawbacks of Crypto Adoption in Fintech
Cryptocurrency is the perfect way to make a case for fintech companies, but there are several reasons why most financial technology companies are still struggling to make that case. Despite the numerous benefits of crypto for fintech firms, the drawbacks also matter.
For one, the volatility of most cryptocurrencies doesn't inspire confidence in most people. Convincing people to convert their pretty stable US dollar to a Bitcoin that has dropped by more than half since the start of the year.
Also, occurrences of crypto scams are neither few nor far between. If any financial technology company intends to introduce crypto to its customers, it should already know they're predisposed to think it's a scammer's currency. Gaining customers' trust in crypto will be hard work, and it just doesn't seem worthwhile right now.
While the lack of regulation seems like a positive thing to most advocates of decentralization, it's not something the average person really cares about, especially when it comes to drawbacks.
Since more decentralization has always directly correlated with worse transaction speeds and terrible scalability, most crypto users may end up adopting centralized cryptos for a start.
Cryptocurrencies are already accepted and will even get more popular in the future. However, it's crucial to understand that many financial technology companies will hold off on adopting it, at least not until most of the drawbacks are ironed out.
Conclusion
Cryptocurrencies have done more harm than good to the financial technology industry in a general sense. However, taking care of some drawbacks could make the innovation work better. If more people could adopt and use cryptocurrencies, for example, fintech companies would be able to take full advantage of these benefits.
