Fintech is the newest explosion of digital business using internet enabled devices to fundamentally change how we all make, use and manage money. But what does Fintech mean exactly? The term is bandied about so freely that it can be safe to assume that everyone knows what it means. This may be the case if you work in the industry but what about your potential consumers, do they have a clue?
Fintech stands for Financial Technology. In the simplest of terms fintech is the emergence of a technology based financial sector. You’ll find that most fintech companies are startups who are set on disrupting the financial services sector. There are many different types of fintech companies in sectors such as money transfers, loans, traditional banking, forex, asset management and mobile payments. The companies have leveraged the large banks and corporations inability to design new and adaptive technology to their own benefit. By creating products that appeal to the ‘mobile generation’ they have wedged themselves between the legacy banks and the consumers, and in turn have seen a boom in business.
Accenture reports that global investment in fintech has jumped from $930 million in 2008 to over $12 billion by the beginning of 2015. The highest growth rate has been in Europe (with London heralded as the fintech startup capital), with an increase of 215% to $1.48 billion in 2014. The chart below demonstrates the rise of fintech, by the way of a digital banking ‘readiness index’.
So what does this mean for the future of banking?
Emerging fintech companies have already changed the banking ecosystem and they have no plans to stop anytime soon. Bankers were asked how fintech may disrupt the banking industry, more than 90% of bankers believed that fintech firms will have a significant impact on the future landscape of banking, with more than a third believing that fintech will win an equal share (24%) or even dominate the market (20%). When asked about banking’s response to the fintech challenge, a majority of bankers (54%) believe that banks are either ignoring the challenge or that they “talk about disruption, but are not making changes”. Unsurprisingly, an even larger percentage of fintech executives (59%) agree with them.
Overall fintech is used as an overarching term that covers the newest financial sector that incorporates new technology at its core, and present large banks with a significant problem, that they can’t seem to catch up. It’s an industry that will see many companies rise and fall, but there will be the so-called ‘unicorns’ that will be to banking what Facebook is to communication and Google is to, well, everything.