How Does Fintech Affect Ecommerce?

Fintech is the practice of applying technology to the financial services industry. Traditional financial institutions use it mainly to handle accounting and other back-office services. More recently, as a result of improvements by startups, fintech applications are changing established financial services and threatening the very institutions that originally embraced them.

Fintech has moved beyond banking to the insurance, real estate, and health care industries. It’s affected loan-making and company fundraising. Crowdfunding, e-wallets, and mobile payments are examples of fintech applications. Crypto-currencies like bitcoin are just another example of fintech.

Conventional financial service providers have a tendency to focus on big businesses because they earn greater profits from them, leaving little and medium-sized companies with fewer choices. Fintech businesses are usually focused on SMBs and start-ups by offering credit and unconventional financing arrangements. Online loan providers and equity crowdfunding platforms utilize fintech to offer funding to companies often ignored by conventional lenders.

Fintech and Ecommerce

Fintech’s biggest contribution to international ecommerce has been changing and improving the online payment system. In countries where consumers don’t have credit or debit cards or bank accounts, fintech has offered alternative payment methods. Without fintech cross-border ecommerce could be nearly impossible.

The development of payment platforms such as Dwolla, Stripe, WePay, and BlueSnap that integrate with ecommerce platforms has enhanced security and efficiency for ecommerce. International money transfers are being accomplished with a lot less friction. When customers use PayPal, Apple Pay, or Google Wallet, they’re utilizing fintech.

Blockchain Technology

Blockchain has been among the most successful applications of fintech. Produced in 2009, blockchain was initially conceived to and anonymously send payments between two parties without needing a third party to confirm the transaction. It was designed to ease the transfer of bitcoins and other crypto-currencies. Blockchain can be seen as the operating system for crypto-currencies.

We have addressed blockchain technology, most recently in”10 Ways Blockchains Can Benefit Merchants.”

How can blockchain technology work? Blockchain is a public digital”ledger” or a relational database which may be shared with users that are similar and generates an unchangeable record of their transactions, each one time-stamped and related to the preceding transaction. Every electronic document or transaction in the thread is called a block and it empowers either an open or controlled set of consumers to take part in the electronic ledger.

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Each block is related to a particular participant and the action log is tamper-proof. Blockchain can only be upgraded by consensus among participants in the system and if new information is entered it can not be erased. The blockchain comprises a true and verifiable record of each and every transaction ever made in the system.

“The blockchain is an incorruptible digital ledger of financial transactions which can be programmed to record not only monetary transactions but practically everything of significance,” say Don and Alex Tapscott, authors of the book Blockchain Revolution.

Blockchain’s conceptual framework and underlying code is beneficial for many different financial processes as it provides companies a secure, electronic alternative to conventional processes. It removes the requirement for paper-based transaction trails. This permits merchants and customers to transact using crypto-currencies and to record transactions for future reference. Blockchain technology can be used to keep digital documents and exchange digital assets.

By way of instance, major online vendors in China, such as Alibaba and, are currently using blockchain technology to offer physical products their own digital passport through QR codes to record their movement from source to customer. This protects against counterfeiting by ensuring that there isn’t any substitution in the distribution chain.

Future of Fintech

Only a couple years ago, proponents were forecasting that agile fintech start-ups would thoroughly disrupt the conventional banking system, making legacy financial institutions insignificant. Banks, late to embrace fintech past the back-office, are now fighting back, largely through acquisitions of start-ups. This week, J.P. Morgan Chase agreed to get WePay from the bank’s first large purchase of a fintech business. The bank plans to roll out WePay’s technologies to J.P. Morgan’s four million small-business clients.

Venture capital investment in fintech businesses has leveled off so start-ups are more prepared to enter into partnerships with large financial institutions or be obtained. The amount of fintech companies acquired by banks currently exceeds the amount of fintech IPOs. During the first six months of 2017, corporate investors — mostly financial institutions — engaged in over 20 percent of fintech VC deals, according to KPMG, the accounting and consulting firm.

In other industries like insurance and healthcare the exact same thing is happening. Large organizations are either acquiring or investing in fintech start-ups. Like the majority of other inventions, fintech will probably become part of the mainstream corporate structure in each of the sectors it impacts.

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