The rise of Fintech has forever changed the way companies do business. The traditional model of a new business turning directly to its local high street bank and/or a conventional investor is no longer the only game in town.
As a definition, Fintech is usually applied to the segment of the technology startup scene that is disrupting sectors such as mobile payments, money transfers, loans, fundraising, and even asset management.
A recent report found that global investment in Fintech has skyrocketed from $930 million back in 2008 to over $12 billion by the beginning of 2015. Europe experienced the highest growth rate, with an increase of 215% to $1.48 billion in 2014.
Furthermore, the associated reworking of financial regulations, new innovations, and customer behaviour, means this figure will continue its sharp growth in the coming years.
The term financial technology can apply to any innovation where individuals transact business, from the invention of money to double-entry bookkeeping. Since the advent of mobile and internet revolution, financial technology has grown explosively, and Fintech, which originally referred to computer technology applied to the back office of banks or trading firms, now encompasses a broad variety of technological interventions into personal and commercial finance.
Previously, individuals and institutions depended on their own expertise and experience or by a market’s signaling function of price to make financial decisions.
New technologies, like machine learning, predictive behavioral analytics, and data-driven marketing are now taking the guesswork out of financial decisions.
On the back end, improved data analytics is helping institutional clients in refining their investment decisions and open new opportunities for financial innovation.
ADVANTAGES OF FINTECH
Fintech is now giving people access to those services that were previously reserved for the wealthy. Take the example of investing. Today technology and data make it much easier and cheaper to bring investment advice to the masses. This means that something that was previously geared towards a certain asset level is now open to everyone.
Or consider lending. Previously, underwriters only had a few data sets to rely on while assessing risks. This meant that lots of people were turned down or charged a higher interest rate for a loan. Financial institutions rely on different information when underwriting consumers, looking at things traditional banks did not consider and providing more people with access to personal and business capital.
We have listed down some major applications of Fintech that can be beneficial for all entrepreneurs.
Robo-advisors are one of the largest areas of Fintech. These advisors are online investment services that put users through a series of questions and then rely on algorithms to come up with an investment plan for them.
Robo-advisors are also proficient at automatically handling the rebalancing and asset allocation, thereby giving customers one less thing to worry about. Robo advising takes what historically required a meeting with a person in an office, and automates it, thereby making the experience much more familiar and less intimidating.
Everyone likes conveniences, and this is why it is not surprising that mobile payments have resonated with millennials. It is also the reason why there are so many choices when it comes to mobile payment providers.
There are digital wallets such as Apple Pay, MobiKwik, Google Wallet and payment processors including Square and PayPal; and money transfer services like Transferwise and WorldRemit.
All of these are focused on one area: digitally paying for things. When it comes to mobile payments, the innovations are not only happening in the front end but it is also happening behind the scenes. There are several Fintechs that started out providing consumers with a better way to make payments.
Take the example of WePay, which has been around since 2008. It’s the payment processor behind GoFundMe. This website allows people to fund a cause or donate to help out in a disaster or tragedy.
PERSONAL FINANCE & SAVINGS
Long gone are the days where the only way to save was via a bank. Now, there are several Fintech startups in the micro saving department that focus on helping people save their money. Many of these startups are also rewarding customers for doing it. For example, with Digit, users can automate the process of saving extra cash, while with a Fintech company called Acorns, users can automatically invest users’ spare change.
Fintech was developed in a large part for providing all entrepreneurs and individuals with better experiences and technology in everything. Fintech is now reaching widely across the financial industry and thereby, resulting in big changes and benefits for people of all ages and economic status.
Crowdsourcing, for example, allows people with big ideas to get funding quickly and easily from anywhere in the world from people they have never met. Instead of months of investor talks, entrepreneurs can – thanks to the shop-window that is the internet – pitch directly to the world. Those with the magic touch can see the funds roll in within a matter of weeks rather than months
Transferring money across borders, a bane of entrepreneur’s lives since time immemorial is another area that is being reworked and reframed by innovators. TransferWise has turned the traditional (and expensive) banking solution to sending money across borders on its head and enables small firms and individuals to transfer money far cheaper than was previously possible.
The above are just a few of the many ways in which Fintech has made it easier to do business at lower costs. Fintech firms can pass on huge savings as they are far more agile than traditional banks, not having the same overheads and commitment banks are blessed (and burdened) with. Their relative lack of size also allows them to innovate and adapt in a way bigger corporations can only dream of.
How Fintech changed the customer
The rise of the smartphone has massively changed the behaviour of consumers. Thanks to the ‘always online’ culture we live in today – and the proliferation of services and apps that feed it – people can not only access information and data they had never previously been able to, but they can also do so while waiting for a bus.
Whether it’s checking their online account or setting up an online investment portfolio, people now expect to handle financial affairs as easily and conveniently as they do their email or Facebook page. It’s a huge opportunity for businesses and soon no enterprise will succeed and flourish without the right Fintech services in place.
At iZettle, for instance, we identified that 20 million small businesses in Europe do not take accept credit or debit card payments. With the knowledge that every business that doesn’t accept card-payments misses out on sales, it should be of concern to all of us that so many of them across Europe do not. Especially given that these small businesses are in a very real sense the economic heartbeat of the continent.
We found that the primary barrier to entry into processing card payments was cost. By turning a device millions of people already owned – a mobile phone – into a point of sales system we were able to offer millions of businesses and individuals the chance to take payments just like the larger corporations they compete with. It also provides a unique insight into their customers through sophisticated analytics tools previously available only to larger businesses.
In this way, Fintech is a great leveller. Customers, however unfairly, expect the same range of services from a small firm as they do a larger one, and technology allows David to compete with Goliath on a far more even footing.
Fintech has only just got started!
The rise of Fintech has opened up a world of possibilities. Businesses can offer more services than ever and for a fraction of the price of what it would have cost before.
Entrepreneurs need to view keeping up to date with Fintech developments as a vital part of their daily life. Being aware of the latest opportunities and developments within the field will only improve your business and help you stay at the forefront of your market.