Financial technology also known as Fintech is defined as the digital innovations in financial services, including financial literacy, education, retail banking, investment and crypto-currencies such as Bitcoin.
Financial technology has created a paradigm shift in the finance sector with the help of digital innovation. With this, we see many Fintech start-ups have started emerging as a disruptive force in the banking sector.
The global Fintech industries are going through a transformation phase because of fast-changing digital landscapes where innovation is exponential. That’s why the Fintech start-ups have started focusing on the financial sector since the 2008 financial crisis. They have also started disrupting the traditional finance sector with its unique business models and innovative technologies.
The Fintech industry comprises of financial businesses like wealth management and asset management platforms, SME finance, mobile payment platforms, cryptocurrency, peer to peer lending, trading management etc.
What are the key features of Fintech?
The explosion of digital technologies such as social media, cloud, analytics, and mobile internet etc.
An increasing demand for better financial products and services because customers are more inclined towards using the digital platforms such as mobile devices.
Lack of trust in traditional banking because of the loss in finance in the year 2008. This has motivated customers to shift to tech-assisted platforms.
The demographic shift and technology explosion is also giving a wide way to Fintech start-ups to rise.
Why is London a leading hub?
During the year 2015, the total revenue of the UK FinTech stood at $10.1 billion. The country is surpassing Silicon Valley because of the increasing venture investments and government support for new start-ups. Furthermore, Fintech community in the UK is flourishing because of the immense support from start-ups incubators and accelerators like Level 39, TechStars, etc.
In the year 2016 Fintech startups have received the funding amount of about $17.4 billion and were on the step to exceed that sum as of late 2017 as per CB insight. This counted 26 FinTech unicorns globally valued at $83.8 billion. The North American produces most of the FinTechs along with Asia included.
Some of the active FinTech innovation areas revolves around:
Blockchain technology including Etherium, a Distributed Ledger Technology (DLT) that maintains records.
Cryptocurrency, the digital virtual currency that uses encryption for security.
Digital cash, cash credits stored in the computer to spend over the internet.
Smart contracts, automatically execute contracts between buyers and sellers.
Open banking, giving third parties the access to bank data for building the apps.
Insurtech, technology to simplify and streamline the insurance industry.
Regtech, help financial service firms meet industry compliance rules
Robo advisors, utilize algorithms to automate investment advice
Some experts in the financial sector feel that the Fintech is overrated and doesn’t have a sustainable model to thrive in the future. However, Fintech start-ups are serving the unmet needs of the customers and offering ease in processing.
In a broader sense, we can expect Fintech start-ups to engage with the established industry contenders and focus more on the customer experience and services in the digital era. In the long run, Fintech will have to invest more in innovation techniques, risk management, and partnerships through collaboration. This will be of great help to both banks and Fintech companies. It also needs to challenge its business models and find their contiguity in the B2B sector. Furthermore, mobile will be a helpful distribution medium for interaction with customers in the future.
Also, traditional financial contenders can explore the new growth opportunities through new monetization models. And banks will have the benefits from the financial technology company’s knowledge to develop the insights about the needs of their customers.
Many banks are benefiting from exploring the cross-border payments option using the Blockchain technology because the rise in the e-commerce industry has led to the shifting of the payment industry to go digital. Banks like Standard Chartered, Westpac, Royal Bank of Canada and Bank of America Merrill Lynch, Santander Bank have started working on Blockchain standards and recently formed the Global Payments Steering Group (GPSG). GPSG is the global blockchain bankers’ network with payment rules and standards.
Banks are also collaborating with cross-industry partnerships to advance the industry. Hyperledger is an open source collaborative project of the leading banks, IoT players and tech companies to make the advancement in the blockchain technology.
Fintech is facing limitations in terms of access to a large customer segment, brand loyalty, and market expertise. This would need collaboration with other Fintech companies and the most preferred ways to collaborate are to create start-up programmes for setting up investment funds. The financial sector gets the benefits from the collaborations especially in lending, digital payments, and money transfer.
Financial innovators are looking to nurture efficiencies and increase relationship with direct and indirect customers across all financial verticals. Fintech have the flexibility and proper understanding of technology to address the business challenges across the chain of capital markets.