Fintech, the fusion of finance and technology, has tremendous potential to address some of the biggest challenges faced by the world today. It has the power to aggregate and mobilize capital, enable financial inclusion for the unbanked and underbanked, foster social mobility, and bring stability to the financial system. However, in recent years, the actions of prominent players in the fintech industry have strayed from these core values, leading to a loss of trust and credibility.
Key Takeaway
Fintech has the potential to address major challenges in finance and empower individuals. However, recent controversies and actions by certain players have undermined the industry’s values. By refocusing on applications that address financial uncertainty, promoting financial literacy, and supporting workers, fintech can reclaim its promise and regain trust.
Good tech, bad actors
A frustrating aspect of recent controversies in the fintech space, such as the crypto market volatility and the GameStop short squeeze, is that they involve applications and business models that have the potential to make a positive impact. Cryptocurrencies and blockchain technology were originally designed to provide transparency, trust, and resiliency in financial transactions. Unfortunately, the actions of certain companies like FTX have subverted these ideals, tarnishing the reputation of the entire field.
Another unfortunate consequence of these controversies is the negative association of “social finance” with Reddit traders and platforms like Robinhood. In reality, many fintech founders have made significant contributions to increasing the number of young people who open retirement accounts. The irony is that even Silicon Valley Bank, once lauded for backing numerous successful fintech IPOs, fell victim to a fintech-enabled bank run. These incidents have made it difficult for fintech companies to obtain bank charters due to increased scrutiny and regulations.
Fintech forward
In order to reclaim their industry’s promise and regain the trust of stakeholders, fintech innovators and investors must realign with the values that underpin their technologies. This requires a focus on applications that address the impact of inflation and financial uncertainty on workers and consumers. Here are three key areas where fintech can lead the way:
1. Turning the economic cycle to the advantage of more individuals
The concept of “buy now, pay later” has gained popularity as a means to give consumers more purchasing power. However, a new approach that resembles the traditional “layaway plan” can be developed. This would allow consumers to set aside money for a desired purchase until they have accumulated the full purchase price. Additionally, employers can offer their workers the option to roll a portion of their salary into an account that earns a higher interest rate. This service can make a significant difference for workers who may not have access to high-yield accounts, providing them with financial stability and protection against predatory practices.
2. Doubling down on technology-enabled financial education
Empowerment without education can have detrimental effects, as evidenced by the backlash against social finance. Innovative fintech companies are recognizing the importance of financial literacy and education, and are building models and technologies to enhance them. Platforms like Zogo and the School of New Africa are utilizing technology to make financial education more accessible and engaging, offering incentives and gamified learning experiences. Integrating financial literacy into educational curricula is crucial for equipping young people with the necessary skills to make informed financial decisions.
3. Making life easier for workers experiencing financial stress
Financial stress among workers can negatively impact their overall well-being and productivity. Fintech-driven services can alleviate this stress by providing user-friendly HR systems, flexible payment terms, and access to affordable banking services. Employers can play a pivotal role in empowering their employees and addressing economic inequities by offering fully functioning bank accounts, debit cards, and earned-wage access. The latter allows workers to receive on-demand payment for hours worked, providing them with greater financial flexibility.
