It’s clear that FinTech is an emerging space that is having a global impact on how we live and how we do business. But how do we define what it is and what makes it so important?
What is FinTech? Other than pulling apart the contraction of ‘finance’ and ‘technology’, FinTech is defined by foreign exchange service provider Kantox as referring to a plethora of organisations and applications that provide financial services through the engagement of technology.
But is this definition enough? Let’s dig a little deeper.
A whole new industry
Chris Skinner over at the Financial Services Club Blog has tackled the matter of defining FinTech by looking at the definitions of traditional and emergent FinTech. While the traditional sphere encompasses ‘facilitators’ with larger incumbent technology firms supporting the financial services sector, the emergent space is populated with ‘disruptors’: Small innovative firms disintermediating incumbent financial services with new technology.
Skinner doesn’t buy the traditional and emergent rationale. In fact, his view paves the way for a whole new industry in the 21st century:
That new world is … recreating the world of finance with technology. It is creating a 21st century world of finance based upon technology. Fintech builds a new world of finance using a digital core that is IP-enabled. It sits hand-in-hand with the Digital Bank, as the new definition of finance and banking. What you end up with is a hybrid new market of IP-enabled financial firms including digital banks and digital insurers, who see their work completely through technology at the core.
Skinner has a good reason to be excited about it all. According to a recent Accenture report about the boom in global FinTech investment, we have seen an increase of over $2 billion from 2008 to 2013, with the UK and Ireland topping the European market in FinTech investment activity with a whopping $700 million dollars.
According to Jens Munch, the associated reworking of financial governance, modernization and customer behaviour means this figure will continue its sharp growth in the coming years. But what exactly is the world investing in?
Kantox reasons that the rise of FinTech stems in part from the Global Financial Crisis of 2007-09. FinTech’s rapid growth has largely been attributed to advances in technology that have made such innovation possible. But Kantox believes that the need for alternative lending emerged as a result of bank credit for the private sector and of individuals across the globe being severely curtailed after the crisis.
This is where FinTech makes its presence known. A range of services have burst onto the scene that allows users to reap the benefits of the following:
- Money transfers
- P2P lending
- Digital banking
- Mobile payments
- Trading platforms
And that’s just the tip of the FinTech iceberg. The startup scene is immense and wants to make a radical change in the way we engage with finance via new and innovative technology. Thanks to the rise of the smartphone, FinTech has forever changed the way that companies and consumers do business. Munch comments that the smartphone has changed the customer and has altered their behaviour:
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.
International money transfers have been simplified by companies such as TransferWise, Azimo and WorldRemit, digital banks such as Number26 and Kreditech are making transactions mobile, and cryptocurrency management is basically elementary with tools like PocketCrypto and BitBlu.
FinTech is 21st century finance
FinTech is the culmination of technology’s impact on the world via an industry that influences the very fabric of society.
In short, FinTech is 21st century finance, whether that means new services from startups, or the adoption of new approaches by existing firms where technology is the central facilitator.