What is Fintech?

What is Fintech?

The word Fintech is an amalgamation of “finance” and “technology” which can be defined as “new technology and innovation that aim to compete with traditional financial methods in the delivery of financial services”.

In recent years, the Fintech industry as a whole has taken off and grown exponentially year-on-year through the emergence of new companies which create new services, new industry sub-sectors and a new market as a whole. 

The distinction between Fintech and financial innovation can be analysed through recent changes that are evident in influencing and even completely changing consumer behaviours.

These changes can specifically be acknowledged through disruptive and incrementally innovative implementations within financial services, and consequently, the flexible adoption of new technological service offerings.

Examples of Fintech

The simplest way to think about Fintech is to identify it as a full-fledged industry. Just like IT, Fintech covers many verticals and subsectors. Some familiar examples include:

Mobile payments – This is a huge industry on its own, with many leading players across the world. Apps such as Venmo (US), WeChat Pay (China) and PayTM (India), to name just three, are extremely popular due to them making transactions effortless and eschewing the need to carry cash. According to data from Statista, the global payments market is forecast to surpass US$1 trillion in 2019

Digital or challenger banks – These are banks that operate with no physical presence and were originally formed in order to cater to underserved markets not traditionally served by established banks. Financial services such as savings, payments, loans can be accessed via a computer or smartphone, putting customers firmly in control of their finances. Some popular challenger banks include Revolut, Monzo, Starling (UK), Nubank (Latin America) and Neat (Hong Kong).

Crowdfunding – Platforms such as GoFundMe and Kickstarter allows people to contribute to causes that may not necessarily get approval for traditional loans from banks. Businesses or individuals can go directly to investors that believe in the cause or project for funds.

Blockchain and cryptocurrency – Digital assets such as Bitcoin have become a big deal in the past few years, but they have been in existence for many years. Blockchain technology ensures the integrity of data as all transactions are recorded and immutable, while cryptocurrency ensures people are truly in control of their own funds. In fact, Bitcoin has helped to keep many afloat in countries such as Venezuela, where the existing currency collapsed.

More niche verticals in Fintech include:

  • InsurTech
  • WealthTech
  • HealthTech
  • LegalTech
  • PropTech

What are some Fintech companies?

According to CB Insights, the top 10 Fintech companies in 2019 that are privately held are:

  • Stripe – US$22.5 billion
  • Nubank – US$10 billion
  • One97 Communications – US$10 billion
  • Coinbase – US$8 billion
  • Robinhood – US$7.6 billion
  • Klarna – US$5.5 billion
  • SoFi – US$4.5 billion
  • Gusto – US$3.8 billion
  • Credit Karma – US$3.5 billion
  • Greensill – US$3.5 billion

However, these are companies that are firmly placed in the category of financial services in that they have focused entirely on this segment and do not have interests in other industries. This list does not include tech companies that have branched out into finance – TechFins – such as Grab and Go-Jek (Southeast Asia), Alibaba, Tencent and WeChat (China) and public companies like Apple and Google. 

What is the purpose of Fintech? 

In a nutshell, Fintech should make financial services easier, more accessible and more inclusive to all members of society. For example, low-interest loans offered by traditional banks are only accessible to people with a certain net worth and credit rating, even though it’s arguable that people in a lower income bracket may need it more.

Fintech aims to break down these barriers to entry, giving a larger section of society access to basic financial services that are much needed. In addition, the disruption of the industry will trigger traditional banks and financial institutions to reassess their position, and will likely result in them offering more diverse, efficient and quality services at more competitive rates, creating a win-win situation for consumers.

Why is Fintech important?

Finance has a long and storied history dating back centuries. Before physical currency was introduced, people exchanged goods and services via barter and trade. The past few decades saw the emergence of new forms of ”Fintech” such as ATMs, cheques and credit cards. 

This emergence of digital services known as “Fintech” today is merely the next step in the evolution of the finance industry, which is making services more inclusive and accessible to all. However, there are a few main points that highlight the importance of Fintech:

It is universal – Fintech gives anyone with an internet connection access to crucial financial services. Almost everyone has a smartphone, but not everyone has access to a bank. The advancement of technology means that financial services are now more accessible than ever to all segments of society.

It is cheaper – A lower barrier of entry means solutions for consumers are less expensive, while the cost of offering such services is also lower for Fintech firms. The lower costs incurred allow companies to offer financial services to more people at a lower price, democratizing finance for all.

It is safer – At a very basic level, the ability to perform financial transactions without carrying cold, hard cash automatically makes Fintech safer than conventional finance. However, technological advances such as cloud computing, blockchain and more have made the industry very robust and secure. In fact, the emergence of digital banks operating smoothly and even being granted banking licenses by regulatory bodies only serves to demonstrate this point further.

How big is the Fintech industry?

According to KPMG, global investment in Fintech hit a record US$111.8 billion in 2018 Investment in the US alone accounted for US$52.5 billion of the total, more than doubling from US$24 billion in 2017. In all, there were 2,196 deals secured for the year, up from 2,165 in 2017.

The exponential increase in investment was also a common trend in other global markets. European Fintech saw an increase to US$34.2 billion from US$12.2 billion a year prior, with huge deals involving WorldPay, Nets, iZettle and more. 

Emerging markets in Asia also demonstrated continued growth, with investment rising from US$12.5 billion in 2017 to a record US$22.7 billion. China made up the bulk of these deals, with ANT Financial’s staggering US$14 billion round accounting for the majority of funds. 

The rate of growth of 2018 has yet to be replicated this year. A report published by Accenture showed that global investment in Fintech dropped sharply in the first half of 2019, with the value of Fintech deals closed in the first six months only hitting US$22 billion, compared to US

$31 billion a year ago. However, this can be attributed to a lack of a mega-deal such as the ANT Financial round in 2018; without counting this, the global investment would have risen by 28% in the first half of 2019. 

This suggests that if outliers are to be disregarded, global Fintech investment can be considered to be on an upward trajectory, which mirrors the continued growth of the past few years. 

Fintech 50 Report by CFTE

Recently, CFTE released its Fintech 50: 5 Years in Fintech report which explores how the top 50 Fintech firms back in 2014 have performed in the five years since. Some key highlights include:

  • A bankruptcy rate of just 4% among the Fintech 50, which is much lower than the expected failure rate of  17 out of 50 among US startups
  • One in four of the Fintech 50 are worth at least US$1 billion today
  • The Fintech 50 collectively have over 319 million clients between them, which is more than Citi, Bank of America and HSBC combined

As our most ambitious project to date, the report also analyses several factors of success. This includes rapid user acquisition and client retention and monetization, while also taking into account the impact the firms have had in the industry, including client growth, equity raised, employee growth, valuation, and more.

Click here to download the full report.

What you need to know about Fintech?

Fintech is an industry that is constantly changing and evolving. New trends emerge annually, and some of the key trends for Fintech in 2019 include:

Chatbots and AI – Today’s chatbots are powered with highly sophisticated AI, which is able to understand not just a conversation, but even the context of it. This means customers will feel like they are conversing with a human instead of a piece of software. Not only does this reduce waiting time for customers wanting solutions, but chatbots are also set to become the main bridge of communication between customers and banks. This creates a true win-win situation for both parties, with better consumer satisfaction and lower costs and more streamlined service for banks.

Voice technology – It is still fairly new, but some banks have begun offering voice technology with their banking services. Although the range of what can be done is limited, the technology is quickly evolving. With many people accustomed to operating music, TVs and smart home devices with their voice, finance is set to become the next field to join the 

Innovation – Big banks are beginning to either copy Fintech startups or work with them directly to broaden their offerings and services. This indicates that traditional finance is beginning to wake up to the importance of Fintech and is responding accordingly in order to retain stickiness and relevance. 

What are the advantages of Fintech?

Every technological advancement in human history has emerged as a result of wanting to make things more convenient, secure, easier and better for users. Fintech is no exception to this.

Let us consider a single aspect of finance – bureaucracy. With many aspects of finance being moved to the digital space, this has resulted in an increase in the speed and rate of approvals. Not only is this a huge improvement in convenience for consumers, but it also reduces the cost of offering such services, which is a huge incentive on the part of Fintech startups or banks. In addition, services such as microloans or insurance can also be customized to the specific needs of the consumer, which further adds to the convenience of the service.

Another important factor to consider is that it democratizes the financial industry, putting power in the hands of the consumer. Traditionally, customers must fit certain criteria to access specialized financial services offered by banks or financial institutions. Those deemed too poor or too risky will not be able to use these services, even though they need it more than those who qualify. 

With Fintech, the lower costs mean that startups, and now banks, can offer services such as loans, investments, and insurance to name three, to a wider spectrum of society. 

Fintech Courses Online

As the Fintech industry continues to grow at breakneck speed, the demand for Fintech talent also increases exponentially. However, there is currently a shortage of employees in the market with the relevant skillset as it is still a fairly new industry. This has created a gap in the market and is a great opportunity for new graduates or experienced finance professionals looking for a change of pace. 

The CFTE Fintech course offers an overview of Fintech in general, and participants will gain a foundational understanding of what it encompasses and how it is changing the world. It also covers all the important aspects of Finance 2.0, and you will learn about the various technologies used by both startups and financial institutions to make financial services more accessible.

For individuals looking to explore a more niche sub-sector, the CFTE AI in Finance course offers a look at how artificial intelligence specifically is changing finance. You will learn from senior figures and thought leaders in AI that have contributed modules, as well as gain an understanding of the various AI technologies and the challenges of merging them with existing services.

About CFTE

We are a platform supported by senior leaders from the largest institutions, startups and universities. We address the needs of professionals in finance to upskill in a rapidly changing industry being transformed by emerging technologies. More than 50,000 participants learn from our online courses, such as AI in Finance, Fintech Foundation or Extrapreneurship, a mini-MBA with fast-growing startups such as Revolut or Shift Technology.

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