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If you think the world of global finance is trying to destroy the world as we know it, you’re not alone. But, there’s a whole world beyond traditional finance which is set to save it – FinTech. First read up on what is FinTech, then see how incredibly many innovative, subversive, and cutting edge companies are working hard to make the world better. A lot better.
From micropayment systems to invoice discounting and new methods of international money transfer, the scope of these changes is huge. If you want to learn more about this, here are 3 ways fintech companies are saving the world.
1. Revolutionizing Finance and Foreign Aid with Mobile Banking
Mobile banking systems pack a one-two punch when it comes to improving life in developing countries. In a nutshell, mobile banking refers to managing and transferring money with cell phones, smart or otherwise. It’s no wonder they’ve taken off at incredible speeds in places like Algeria, Kenya, Sudan, and Gabon.
That translates into:
- Banking in places with no banks
- The benefits of credit and debit cards in places with no card terminals
- Electronic payments in places with no electricity
It’s easy to take these kinds of benefits for granted, but they provide enormous gains in both convenience and efficiency in everyday lives. This means more robust economic growth. But, beyond growth, it’s also transforming how foreign aid is distributed.
The ratio of aid distributed to the cost of administering & distributing that aid often approaches 1:1. That means enormous waste. It puts the very idea of foreign aid under harsh scrutiny.
But systems which use antennae to send small electronic payments to refugees over huge distances in war-torn regions like the Democratic Republic of the Congo mean faster, more flexible, and more efficient aid distribution. Because the aid is electronic and handed over via cell phones, the money can be closely tracked as well, reducing corruption.
Mobile financing is a powerful combination of technologies which has enormous potential, but fintech isn’t stopping there.
2. Helping Migrants Build Credit
Of course, fintech isn’t only focusing on the third world, it’s also looking at how it interacts with the first world. Namely, by helping migrants. Fintech is tackling an issue most people don’t have to think about: building credit. While many people begin to build credit naturally by taking student loans or getting a credit card, many migrants arrive in a new country without any provable credit. This leaves them in a financial limbo and makes it difficult to establish themselves.
Companies like Aire are tackling this head on. With founders who all faced difficulties building credit from scratch, Aire has a deep understanding of the problems this creates.
Here, fintech is getting to the heart of credit worthiness. In the simplest terms, it’s all about how trustworthy you are. So while this is traditionally proven through a variety of financial history data points, Aire shows us that we can demonstrate financial responsibility in other ways, too.
Their technique is to look more widely at things like behavioral history to prove to financial institutions that its customers are credit worthy. But, that’s not the only way fintech is aiming to benefit migrants.
3. Making International Money Transfers Radically Cheaper
Anyone who has ever had to send money abroad knows how expensive and inconvenient money transfers can be (up to 20% can be lost to fees). That expense and inconvenience is multiplied if you’re a migrant worker or immigrant sending money home often.
Considering many countries rely heavily on remittances, any hiccup can lead to an almost instantaneous crisis, as we saw in recently when Merchants Bank of California stopped allowing remittances to Somalia, leading to a food crisis. So how can the system be improved in terms of efficiency and stability?
Fintech companies are using several tactics here. The first is to cut down on fees by either reducing overhead by being smaller and leaner, or by simply bypassing international transfers altogether.
The latter strategy is quite interesting, and companies like Transferwise are implementing new unique systems. Here’s how Transferwise works: if you want to transfer $100 to a person in another country, instead of simply transferring the money from your bank account to theirs, the company transfers the $100 from your account to their own account in the same country, passes it internally to a second account in your friend’s country, and then directly to your friend’s account.
That means no money actually crosses an international border, leading to fees which can be as much as a 10th of what banks charge. These savings can make a massive difference in the lives of migrants and their families.
Improving the World Step-By-Step with Fintech
While there’s still an incredible amount to do, fintech companies are showing us all how finance can revolutionize the world on the individual level. That’s almost enough to undo everything you’ve ever read about sub-prime mortgages.