How 5G Will Drive Fintech Innovations

Alisa Tkach

Boosting fintech innovation with the power of 5G.

Boosting fintech innovation with the power of 5G.
The fourth generation of broadband cellular network technology, aka 4G, triggered off the app economy. Uber, Airbnb, and other applications that we use daily could not function without connectivity 4G enables. 

Today we’re on the verge of the 5G era, a technology 600 times faster than its predecessor. Given that 5G transfers information quicker than the human brain processes reality, there is no doubt it will transform every industry from AI, Augmented Reality, and Quantum Computing to something more common like payments. 

5G in a Nutshell

With 5G, the speed of experience gets to a whole new level. The technology relies on two types of waves to execute its processes: millimetre waves and mid-band spectrum waves. While the former are exceptionally fast but only work at a short distance, the latter ones are slower and cover over distance.

With the rising amount of financial transactions worldwide and unprecedented volume of circulating data, the 4G tech is less efficient in handling the load. 5G should significantly decrease the time lag when a device sends a request to a server and receives a reply to less than one millisecond.

Currently, the 5G tech is far from being widespread, mainly because the complete network restructuring needs much funding. By the end of 2020, investing in 5G infrastructure upgrades was estimated to cost $1 trillion. Besides cost, 5G infrastructure development faces a few more challenges, such as the need for ​​higher spectrum bands, deployment complexity, regulatory updates on security, radiation, infrastructure sharing, etc.

5G and Payments

Despite the obstacles, 5G is an inevitable future, and the payments industry will surely benefit from new technology. Touch-free interactions became normality, and the pandemic has only accelerated the spread of QR-codes and mobile payments. 5G has the power to improve the quality of contactless payments and go beyond mobile experience, bringing wearable and IoT devices, as well as virtual reality, into use.

Transaction security that helps prevent fraud can be improved by using the 5G tech. Low latency means faster data processing and accelerates verification, amount confirmation, and funds sufficiency. By completing transaction data with geolocation and merchant ID, you can level up customer protection. 

Suppose you install 5G in the house and the surrounding area. Then all in-store payments will move faster and will not be subject to any shutdowns. In general, all transactions between banks, merchants, issuers, or other payment network participants will get faster with the new tech. Not only will money travel much quicker, but also more seamlessly, unleashing the potential of other technologies. 

5G and Fintech

Apart from enhanced security and streamlined payments, 5G can address quite a few issues the fintech space is currently facing. 

Mobile Banking

Introducing 5G-powered high-speed internet in remote areas with a high percentage of the unbanked population combined with digital banking and other fintech innovations can lead to the total transformation of the global economy. The need for the physical presence of financial institutions will be eliminated as a high-speed, real-time user experience will be accessible via regular mobile devices.

Improved Lending

Higher speed and capacity will lead to the rapid development of fintech products and processes, including a smarter approach to lending. Lending rates optimisation alongside the availability of virtual assistants will help users make better decisions. 

Trading 2.0

Another innovation that 5G may introduce is high-frequency trading, advancing the process of stock market transactions. Based on the real-time data related to politics, economics, and other relevant market updates, technical analysis can become way more sophisticated. As for the brokerage firms, they will most definitely embrace the instancy of mobile transactions.

Total Paradigm Shift

As mentioned earlier, the 5G-backed user experience will not settle for only mobile devices: all kinds of smart devices and machine-to-machine connectivity will require no human intervention whatsoever. The utilisation of the Internet of Things technology will be as possible as ever. 

Mobile wallets, digital currencies, and new-gen payment solutions will challenge the world of banking as we know it today. The chances are that traditional financial institutions will have to give way to large enterprises, brands, and other platforms that will start offering banking-like services. Alternatively, empowered by the democratic finance model, SMEs may start running the show, connecting consumers, supply chains, and accelerating economic growth. 

The Bottom Line

The introduction of 5G will leave an imprint on the financial sector, driving fintech innovations and removing bottlenecks. The improved connectivity will also help the unbanked population get access to digital banking. Moreover, we should also expect a surge in partnerships between banks, fintech platforms, and big tech that will lead to a highly-functional global infrastructure. 

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