The FinTech Industry: A Snapshot
What is FinTech?
Financial technology, known more commonly as FinTech, is a term that refers to the use of technology to improve financial services and make them more efficient. As a driver of the digital economy, FinTech has the potential to revolutionize financial sectors through innovative financial solutions.
The global FinTech industry is expected to grow at a compound annual growth rate (CAGR) of 6%, making it worth $26.5 trillion by the year 2022. Using software or other technology, FinTech powers mobile payments, crowdfunding platforms, insurance, investment, lending, as well as blockchain and cryptocurrency. In simple terms, it’s an emerging industry that aims to streamline financial flows and manage finances to enhance user experience and service delivery in the industry.
Taking the financial services industry by storm, FinTech companies are valued in billions of dollars, with companies such as Adyen, Qudian, Avant and Ant Financial topping the list. In 2019, FinTech investments reached $55.3 billion, with close to half the amount coming from China. For the common man, services like Square, Swipe, Venmo, WePay have altered the way they perceive lending and payment transactions.
The mobile cash app, PayPal, recorded a 17% year-on-year growth and 286 million accounts active worldwide in the second quarter of 2019. Relatively traditional credit cards, such as Visa, are also catching up on the trend and making the move towards software technology.
From businesses to consumers, the term encompasses all kinds of technology used in financial services, including mobile, software or cloud services. This has made consumers less reliant on traditional banking services and financial institutions.
In 2019, 64% of consumers used at least one or more FinTech applications. This steep rise in the use of FinTech services reveals a new consumer pattern, in that users now prefer a digitized experience when it comes to accessing their finances on the go.
With consumer-focused applications, technology has moved from the back-end of banking platforms directly into the hands of the end-user. Managing and tracking funds, insurance, and investments are easily just a tap away, with most of the services accessible from hand-held devices like smartphones and tablets.
- Alternative Financing
As a substitute for traditional financial institutions, Fintech lenders provide customers with loans based on credit scores and peer-to-peer loans. Budget apps provide financial advice and opportunities for individuals and households, as well as retirement and investment advice.
Raising capital has become easier for firms, startups, and entrepreneurs through online crowdfunding platforms. Social projects, innovative products, and causes manage to raise equity capital by connecting with established investors. This virtual technique for fundraising also provides transparency to lenders and borrowers alike.
- Consumer Banking
Consumers currently outside the formal banking sector can be reached with digital banking services, for example, in the form of prepaid cards.
- Mobile Payments
Banking services such as bill payments, funds transfer, and virtual access to bank accounts have been made possible on mobile devices through FinTech. A number of banking operations can be performed online using biometric technology. This includes payment back-end and infrastructure required to run payment processing, electronic payments and other points of sale terminals.
As a more flexible option than conventional insurers, the use of software technology to provide insurance services has become common. Personalized offers and pricing, data-driven insurance plans and risk management allows users an enhanced experience.
FinTech investment solutions allow users to manage their investments in one place. Using a smartphone, financial instruments can be bought and sold. Augmented investment management analytics, offered as part of the digital service, allows users to better manage their next investment move.
Blockchain and Cryptocurrency
Blockchain technology and digital currencies provide secure transactions that can be implemented to business-to-business (B2B) transactions. FinTech companies can leverage this technology into finance and banking realities and extend their user base.
FinTech Use Cases
An estimated 2 billion people do not hold a bank account. Tapping into this market segment, located mainly in South Asia and parts of Africa and South America, is a key business opportunity for FinTech firms. This follows from the basic premise that FinTech builds on: reaching the end-user without friction.
This outreach of Business to Client (B2C) budget apps and cash apps has the potential to revolutionize finances as we know it. Anyone with a mobile device can have direct access to their financial assets and make transactions without having to go through formal, and somewhat outdated, banking formalities.
Easy Lending Solutions
Banks have served as the primary source of loans and financing for businesses for a long time. With the advent of FinTech, this is about to change. Through mobile technology, companies and individuals can now find a greater mix of lending avenues and make the process more transparent as they go.
Lending and payment services were amongst the first few services offered with the intention of supplementing established financial institutions. Access to financial data through cloud-based platforms and Customer Relationship Management software also lends a hand in supporting businesses.
What’s Next for FinTech?
The fact that FinTech has infiltrated the financial services industry does not indicate the demise of conventional banking just as yet. While financial institutions may not be able to turn the tide, they can draw level with disruptors by incorporating innovative technologies in their offerings. Innovation incubators, labs, and other investment vehicles have been put in place by large institutions with a view to adapt to changing times.
As a strategy, understanding FinTech will be part of business acumen, for a future outlook on financial services. As opposed to being considered as alternatives, technological solutions will need to be considered as permanent collaborations between the new and the old. The eventual outcome will be based on the extent of cooperation that can be achieved before innovations start to pay back.
The Internet of Things (IoT), AI and APIs will transform the way businesses plan to use technology to complement their services. Blockchain, for instance, has untapped potential for redefining payments by amplifying the speed at which transactions can be made. Big data is revolutionizing decision making in areas of investment, customer engagement and outreach, as well as product/service development.