The current financial service industry is vital to the global economy, but only provides their services at a traditionally high cost.
Despite recent developments in financial technologies (commonly referred to as FinTech), the following underlying issues persist:
High transaction fees - Due to regulatory requirements, complex interoperability issues between financial institutions and services that require a multiple brokers and middlemen.
Slow transactions - Particularly for international transactions, moving money from one institution to another can take hours within a country and days between countries.
Lack of transparency - Financial instruments are complex and most users do not have access to the information that would allow them to make optimal decisions, giving an unfair advantage to larger players.
Unequal access to financial services - According to the World Bank, about 1.75 billion people worldwide do not have access to financial services, and when they are, lower-income people are hit with above-average fees.
Censorship - In countries that suffer from poor governance and corruption, people are sometimes unable to protect their wealth. Intervention comes in the form of governments, central banks, and big corporations.
Counter-party risk - In financial transactions, such as loan transactions, there is a risk the other party will not meet the payments.
FinTech has been attempting to address these problems with solutions such as online international transfer services or savings and investment apps and mobile money for under-served markets.
“However, change is incremental and is still built on top of a system that fundamentally requires the overhead of agents to provide trust.”
While some of the costs can be reduced, FinTech can’t address the underlying issues of lack of transparency as it is dealing with the same financial instruments and going through the same major institutions as traditional finance.