What is a fintech ecosystem? In the most basic sense, it can
be described as a collaborative network of systems or organisations working
together to support the overall growth of the industry.
In finance, this usually means developing new technologies
and products to make it easier for people to transform the industry and shape
the future.
Beyond technology, fintech ecosystems can also encompass
everything from regulation and education to banking and investment. It's a
democratic process of networking that helps accelerate development and improve
the financial landscape around the world.
The strengths of fintech ecosystems
One of the key benefits of a robust fintech ecosystem is the
ability to drive innovation. By working together, organisations can share
knowledge and ideas and develop new products more quickly and efficiently than
they could independently.
This collaborative approach also helps reduce the risk
associated with innovation, as organisations can spread the cost and
responsibility for testing new ideas across the network.
"The regulator here in the UK remains incredibly collaborative
with fintechs and the wider financial services industry and strives to strike a
balance between fostering innovation and keeping consumers safe," said
Olivia Minnock, Editor at FinTech Alliance. "It's here that the term
'ecosystem' is most important – regulating something like BNPL or
cryptocurrency is not a two or even three-way conversation, but involves a
matrix of parties feeding back and forth, including government, regulator,
fintechs, traditional institutions, merchants and of course the customers at
the centre of it all."
Financial inclusion and the Fintech effect
Another benefit of a robust fintech ecosystem is the ability
to promote financial inclusion. By making it easier for people to access
banking and investment services, ecosystems can help bridge the gap between the
haves and have-nots.
"The need to incentivise, cultivate, and scale
innovative companies meeting the unique financial needs of different
demographics was a significant factor in the West Virginia Legislature's unanimous
passage of the state's regulatory fintech sandbox," said Sarah Biller,
co-founder at FinTech Sandbox and executive director of Vantage Ventures.
"West Virginia's regulatory fintech sandbox is certainly a useful tool in
my work to expand the state's fintech ecosystem and build and scale companies
meeting the needs of rural Appalachians."
Technological advancement in Fintech
When two or more great minds work together, the potential
for technological progress increases. Fintech ecosystems provide the perfect
environment for technological development, and as a result, the industry is
constantly evolving and innovating.
"Fintechs have played an important role in expanding
the technology choices available to advisors and wealth management firms. Tools
introduced by the fintechs have also helped push the digital agenda forward,
leading to the refinement of the usability and interactive aspects of the tools
available to advisors," said Nitin Seth, CEO at Incedo Inc.
Fintech startup acceleration
Fintech ecosystems are also great for companies at their
early stage, as they provide a nurturing environment to help them grow and
develop. By connecting startups with established organisations, ecosystems help
advise and expose new technologies and products to the market more quickly.
According to Kim Minor, Senior Vice President of Global
Marketing at Provenir, "Fintech ecosystems that are purpose-built offer
members a jumpstart in the industry and quickly distinguish the early movers.
The pace of innovation is fast, and ecosystems are the critical ingredient to
successfully tackling well-worn topics like digital-first and instant
gratification, and yet to be named new industry leaders."
Machine to machine ecosystems in fintech
In addition to people-based ecosystems, machine-to-machine
ecosystems also play a role in the fintech landscape. These are networks of
devices that interact with one another, whether fully automated or requiring
some human input.
"In the B2B world, there are any number of different
fintech solutions designed to solve very specific problems, such as
streamlining the capture of supplier invoices or matching them with purchase
orders, routing invoices for approvals, scheduling payments, and automating the
reconciliation of the receivable on the supplier side," said Vijay
Ramnathan, President of MineralTree.
Additional examples of machine-based ecosystems included;
the internet of things (IoT), artificial intelligence (AI), machine learning
(ML), robotics, or the combination of any of these.
Other advantages and disadvantages
The following are some of the advantages of fintech
ecosystems; strategic partnerships increased access to capital, enhanced
support, and more. There are also other strengths not mentioned above, such as
the ability to develop new products and services more quickly, among others.
"It takes the creation of ecosystems around different
sectors within fintech in order to effect transformational change within the
overall financial technology industry," stated Nelson Chu, Founder and CEO
of Percent. "It is rare for a single company to cause the incumbents to
make a move but when enough of a groundswell of companies emerge around a
specific sector or purpose, you see banks and traditional financial technology
companies react."
Nevertheless, there could also be disadvantages and risks
associated with fintech ecosystems, such as the risk of market saturation.
Additionally, ecosystems could also lead to monopolies and complacency.
Understanding and abiding by laws and regulations are critical before entering
or creating an ecosystem to mitigate potential risks.
Different hubs are appearing worldwide, all with their own
focus. Such ecosystems are helping develop a strong sense of community and help
businesses grow. London is an excellent example of a city with a thriving
fintech ecosystem, thanks to its well-established financial sector and strong
startup culture.
According to Pat Larkin, Director at Mass Fintech Hub,
another example is the state of Massachusetts, which "identified fintech
as a priority sector in statewide economic development plans, placing it
alongside cybersecurity, robotics, and AI as verticals where our state can be a
global leader." He continued, "Through the Mass Fintech Hub
partnership, we are able to engage and energise a broad cross-section of
stakeholders to address critical issues that will help promote growth within
our state, unifying partners from the private sector, academia, and
government."
It's time for a collaboration reboot
Fintech ecosystems are changing the financial landscape.
They offer a collaborative environment where organisations can share knowledge
and ideas, promote financial inclusion, and develop new technologies. As the
industry constantly evolves and innovates, ecosystems will continue to play a
role in its development.
In conclusion,
fintech ecosystems are essential because they democratise the financial
landscape. Ecosystems are present in different hubs worldwide, each with its
own focus. As fintech evolves, so too will the role of ecosystems within it.
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