Information and Communications Technology & Media | 10 Sep 2020
FinTech (Financial Technology) can be understood as innovations that improve and automate the delivery and use of financial services. With the internet and mobile/smartphone, FinTech now describes a broad range of technological interventions in personal and commercial finance.
When FinTech first emerged, it was initially applied to the back-end systems of established financial institutions. However, FinTech now includes different sectors and industries such as education, retail banking, fundraising and non-profit, and investment management. Traditional financial and banking industries find themselves increasingly displaced and both commercial and customer banking has become more convenient, efficient and accessible, with more consumer-oriented services. FinTech is predicted to transform the market even more with AI and machine learning.
According to EY’s 2017 FinTech Adoption Index, one in three consumers utilise at least two or more FinTech services, and are increasingly aware of FinTech as a part of their lives. We need not look very far beyond our daily routines. Many of us now use our smartphones for money transfers (such as PayPal or PayNow in Singapore’s case), bypass a bank branch to apply for credit, raise funds for a business start-up, transact using cryptocurrency, or manage investments via roboadvisors.
FinTech has been used for many of the newest technological developments. By combining the latest technological developments with financial services or applications, FinTech has helped businesses, especially start-ups, to disrupt the industry and provide better financial services.
In 2018, North America produced the most FinTech start-ups, with Asia a close second. According to the State of Venture Capital report, 2018 saw $254 billion of global investment into about 18,000 start-ups in venture capital funds (46% increase from 2017). Global FinTech funding hit a new high in the first quarter of 2018, led by an uptick in deals in North America. Asia also saw a spike in FinTech deals. The global FinTech market was worth $127.66 billion in 2018, with a predicted annual growth rate of about 25% to $309.98 billion until 2022.
Who uses FinTech?
Many of banking’s first forays into FinTech were on B2C applications like lending and payment services. Apps like PayPal and Apple Pay allow customers to transfer money, and budgeting apps help manage users’ finances and expenses, via the internet or mobile technology.
Traditionally, businesses go to banks for loans and financing. With FinTech, businesses can now get loans and other financial services through mobile/web technology. Additionally, customer-relationship management and cloud-based platforms like Salesforce provide B2B services, allowing companies to interact with and use financial data, helping to improve their services.
Benefits of FinTech
Trends toward mobile banking, increased information/data, more accurate analytics, and decentralisation of access, will create opportunities for users to interact in unprecedented ways.
The technological innovations influence reach is diverse. FinTech is largely developed to give consumers direct access to their financial lives through accessible and fast technology. For about 2 billion people worldwide without bank accounts to access financial services, FinTech is a nimble option without the need for the brick-and-mortar.
FinTech also enhances relationships with customers. Take crowdfunding platforms, which allows SMEs, entrepreneurs, charities and artists to receive support in addition to conventional means. Social change is another aim of many FinTech firms. People in developing regions such as Africa, Asia and India now have access to microfinance and digital lending platforms.
Read more on the uses of blockchains, including use cases for FinTech HERE.
Factors that contribute to the maturing of the FinTech sector
- Maturing new technologies, e.g. AI and cybersecurity, that helped fuel innovation in this area.
- The macroeconomic situation, particularly in the UK (one of the most advanced FinTech markets) and Europe, has deteriorated, slowing down investments to younger companies.
- More mega-deals are happening in developing countries, where unbanked and underbanked populationare providing fertile ground for rapid growth.
- Many first generation investments in companies that tried to capitalise on the 2008 financial crash are reaching the end of their life, and are preparing to return money to the investors.
FinTech’s expanding horizons
If there is any word to describe how FinTech has affected traditional trading, banking, financial advice, and products, it is ‘disruption’. The most talked-about, and usually most funded, FinTech start-ups are set up disrupt. In other words, to challenge and take over traditional financial services by being more nimble, serve an underserved segment or providing faster and/or better service.
However, entrenched, traditional institutions are paying attention and are investing heavily to become more like the companies seeking to disrupt them. That said, industry watchers warn that more than just increased tech spend is required. Competing with more agile start-ups means huge changes in thinking, processes, decision-making, and overall corporate structure.
Financial institutions failing to digitalise will struggle to survive. New technologies, like machine learning/AI, and predictive behavioural analytics, will reduce the guesswork and habit of financial decisions. Apps will learn the habits of users, and engage users to make their automatic, unconscious spending and saving decisions better. FinTech will be a keen adaptor of automated customer service technology, utilising chatbots and AI to assist customers with basic tasks and to keep staffing costs down, as well as being leveraged to fight fraud to flag transactions that are outside the norm.
We look at the uses of FinTech and FinTech in Singapore in our upcoming articles.