Fintech has been slowly fueling the financial transactions and other money-related services for the past 20 years. A boom that started in the past five years, the Fintech market has made quite a presence both in the B2B and B2C space. It’s a growing and sprawling forest of exciting new solutions for both consumers and businesses.
But there is no ‘suddenness’ to it. The industry has been growing in the business landscape quietly, and consumers and companies have been using the services offered by Fintech providers to make their lives a little better. A small supplementary diet maker in Missouri who receives payment from a customer overseas through Paypal is one example. Sending your cash-strapped friend emergency funds through your phone app is another. Entrepreneurs who take to crowdfunding to look for investors are a third.
Similar elements make these transactions stand out from the traditional ways of money management. First, IT and the internet form the structure in which the transactions are made. Second, none or little of these activities are being performed under the auspices of a bank, a broker, a lending company, or the other financial players that had dominated the playing field for years.
The services involved in the examples above come under the Fintech umbrella. Their fulfillment time is faster, more convenient to the customer, and costs half of the usual rates that one finds in the banking system.
Let’s go back to the forest analogy. If you’ve traded stocks using the Robinhood app because it doesn’t charge you a fee for the trading, or secured a loan from the peer-to-peer lending site Prosper because they guaranteed the release of the money in 24 hours, then you’ve availed of Fintech services. You’ve gone into the forest and picked a fruit from one of their trees. If you enjoyed the experience, chances are you’ll try another fruit from another tree. By the time you’re in the middle of the forest, you would be accustomed to the convenience provided by Fintech solutions that going back to the old way would feel unnatural.
Taviq chronicles the history and evolution of Fintech and how it steadily grew and became part of the business landscape.
Banks and the traditional financial players used IT as a support system for their services. Like other companies, they had spreadsheets and databases to document transactions and perform transfer services. But these mainly helped these establishments do business and required no direct interface with the consumer.
This changed with the internet in the 1990s. Pioneering companies like Paypal used digital technology to make customer-related transactions easier and faster. Virtual banking took root as business owners found out that they did not have to fill up bulky documents or spend long hours at the Post Office to establish markets in Europe and Asia. The explosion of e-commerce made global fund transfers as easy as a click of a button.
The evolution of the smartphones and apps, along with the integration of smart systems into the business environment, soon made virtual banking a viable and strong alternative to traditional banking. Budding entrepreneurs needing their first capital funding found they did not have to spend months making pitches to venture capitalists; two posts in a peer-to-peer lending site could get them hundreds to thousands of dollars from interested investors in just a few days. Companies wrestling with cash flow problems did not have to wait for weeks just to get a loan; virtual lending companies can wire them the money in two days. Approval of their request is fast because Fintech companies use data analytics and other software to gather the information and analyze them to verify the applicant’s eligibility.
Another thing that has made Fintech a phenomenon is a very young and dynamic audience who have made the digital technology a part of their daily life. These are Millennial professionals (and later on their younger Gen-Z siblings) who routinely resort to online platforms to fulfill their needs, including financials. Many would rather chat online with a data-savvy, net-wired independent financial consultant for their investments rather than drive to an oak office and listen for hours to the advice of their father’s senior banker whose only exposure to the net is email.
The younger generation and those that follow them can make Fintech’s hold even stronger. But you don’t have to belong to that niche to appreciate this nascent industry. Fintech has made accessibility to funds and the processing of all other money-related services speedier, more efficient, and less cumbersome.
Fintech has disrupted the banking and financial services and will continue to do so in the foreseeable future. Meanwhile, these legacy establishments find that, to cope, they must develop on and improve their obsolete IT systems. Considering the huge complexity of that task, many would rather outsource their services to Fintech startups, or acquire them totally.
It is a wise move as the growth no shows signs of stopping. According to the International Trade Administration, Fintech startups have attracted at least $19 billion in investment the past two years. Goldman Sachs estimates that about $660 billion in revenue will move from the traditional institutions to the Fintech industry, specifically in the areas of payment processing, wealth management, crowdfunding, and peer-to-peer lending.
That’s how huge and fast the Fintech forest has been growing. The question is: as a businessman, CFO, or IT manager mandated by your executives to help find Fintech specialists, how do you navigate your way around this forest to find the best solutions for your needs?