Pros and cons exist of each technique, but first, it’s essential to understand what fintech is and how it affects finances.
The debate between tradition and technology affects all parts of everyday life. Small innovations add up and pave the way for technology to improve on a system or process. Mobile banking, for instance, came from standard financing and added technological benefits and capabilities that seem to be ever-expanding. That’s where fintech comes in.
Fintech, or financial technology, is a growing industry that’s changing the way you interact with your finances. Whether it’s marketing solutions or banking, fintech will eventually provide services for it all.
Taxes are one of the areas fintech is affecting. They’re the thing you may dread every year, or every quarter for some, that never seem to cease being a stressor. However, since fintech is making its way into that realm, you may have more options for filing in the coming years.
The technology and tradition debate resurfaces here. While some may opt for the newer ways of tax organization, others remain skeptical and will stick with the standard methods of filing. Pros and cons exist of each technique, but first, it’s essential to understand what fintech is and how it affects finances.
What Is Fintech?
Technology has worked its way into each part of lives, streamlining and optimizing anything and everything. Finances are no exception. Fintech is any technology that provides a platform to compete with traditional financial services.
You can implement financial technology in your personal life or business in many ways. It could be something as simple as online payments, or you could venture into cryptocurrency territory, which gets a little more complicated. GoFundMe is a specific example of a platform designed for digital financing and raising money.
Individuals and businesses alike use fintech, too, for taxes. A part of fintech entails automation, which means the system or software can run on its own. With fintech designed for taxes, the process wouldn’t be as intensive for you as it currently may be. Specialized systems offer algorithms that simplify the process for you. Many business-to-client (B2C) or business-to-business (B2B) companies also use it to maintain connections and keep proper records for tax purposes.
Fintech is growing — by the third quarter of 2019, funding for fintech increased by 82% from the previous year and is still growing. As it starts to become a prominent resource for taxes, the debate around technology and tradition may heat up. This kind of change could be too big of a leap of faith for some. For others, it will entail a better system of filing taxes. Regardless, it will change the way societies approach the taxation system.
How Does It Affect Taxes?
Taxes have been around for a couple of centuries now. For many, it’s a tedious and overly-stressful process — you have to keep your records organized throughout the year, file the right paperwork, submit it on time and make sure you have accounted for everything or risk facing monetary consequences. Merely mentioning the word “taxes” might warrant a groan. Because of this reaction, many people opt to use services that file their taxes for them.
The overall process, including the reactions to filing taxes, has opened the doors for fintech. Since innovation is continuously happening, streamlining taxes is an appealing option. This concept would entail you setting up the system and taking more of a backseat approach. The process is similar to automatic payments for cars or student loans. The system would gather your data and financial records throughout the year and submit it to the IRS at the appropriate time using a tool called robotic process automation (RPA).
With the growing automation and technology within the tax and banking process, the pros and cons emerge. These ideas further the divide between which path is best for taxes. Should the process continue down the same road that it has always been on, or should the public and businesses start integrating a new, technological form of filing?
Fintechs come with certain benefits that can help a range of people by streamlining the process and providing more accessibility and clarity while keeping up with changing innovations and trends. Since technology is the way of the future, the overlap of fintech and taxes seems inevitable. However, the rate and degree of integration will depend on fintech’s capabilities.
First and foremost, fintech will help ease the tax filing process. It’s something people react negatively to, so many people will invest in the opportunity to make the process easier than ever.
Next, it offers unique transparency regarding the process. Have you ever been curious about how the tax chain works? What happens after you file yourself, or you have a service do it for you? Fintech can provide more clarity on the topic. These systems will also help people feel more in control of their finances during a simplified process.
Accessibility is another benefit that comes from fintech. As new technology provides more platforms online for things like filing taxes, those who may not have access to standard financial services will start to partake. Fintech could be cheaper and more digestible than a regular tax service, so those neglected by the system may find comfort with innovations.
Staying relevant with new technology is always a plus, especially for businesses. Fintech offers an easy way to do so.
Though the pros provide accessibility and a way toward a technological future, the cons hold people back from fully investing. Potential errors and security issues are at the forefront of skepticism towards fintech.
Security is always an issue. Breaches or accidents can always happen, but since fintech is relatively new in its capabilities, people are wary that the technology could potentially mishandle tax information — which is not something people want. Privacy, too, could be an issue. Since it’s new to the public, people will want to know how companies handle their private information and how much they have access to.
Hesitation around security and privacy leads to trust issues. With those kinds of concerns, people will remain with traditional methods. Standard financial services are also more likely to catch errors or be able to negotiate with the IRS. For instance, if you leave deductibles off your tax filings, fintech won’t necessarily be able to catch it, whereas a standard service would.
Additionally, financial services have more of an ability to talk to the IRS to work out better payment deals for you. For example, BCTax was able to help a taxpayer evade large payments to the IRS in favor of smaller, monthly increments. Unfortunately, fintech can’t provide this service.
With technology comes faultiness and glitches, too. Trusting technology to handle something as important as tax information is something fintech will have to earn from individuals and businesses.
Should You Use It?
The benefits and drawbacks may seem somewhat even. If you’re looking to invest in one over the other, you may want to know which is objectively better. However, the answer is that it depends on a number of things.
Your personal preferences will play a factor. If you would rather work with a firm that specializes in taxes or you’re wary of potential privacy risks, then the traditional way would be optimal. If you’re interested in branching out to the newest technology, though, fintech would be suitable for you.
The next consideration is resources. Are there specific needs you have for your taxes that fintech won’t be able to handle? A professional may be able to help where fintech cannot. However, technology may provide a cheaper alternative to otherwise expensive issues for banks, individuals and businesses.
Availability will also play a role in using fintech for your taxes. Although fintech in other areas, like data analytics or collection, is becoming more developed and accessible, the concept for taxes is just getting started. Tax automation is growing in popularity, so within the coming years, developers will flush out the details more. Some systems are ready to go as of today, though. Think about each of these factors before researching the available platforms.
A Balanced Future
The debate continues — technology improves much of everyday lives, but when it comes to financials, people will need more convincing and adjustment. One of the best ways to do this is through a balance of tradition and innovation. Experts believe that fintech for tax purposes is still in the works, which gives developers time to integrate it better with existing services.
With a mix of both options, consumers can receive the benefits of each process, reducing the drawbacks. People can balance the innovation, simplicity, and transparency of fintech with the security, reliability, and resourcefulness of financial services. In this way, fintech for tax will become more widely accepted and trusted. This combination is still a few years away from implementation. It will take time for people to adjust to a technological change and to trust it. However, technology happens fast, and groundbreaking innovations come weekly. A development like fintech for tax filing could revolutionize the entire process in the blink of an eye.