At its heart, fintech is the business of using technology to improve financial services. These services are the ways in which consumers and businesses manage, move and store their money: paying, lending, saving, borrowing, investing and so on. Previously only big banks and financial institutions could do this but things are rapidly changing. Fintech firms are aiming to fragment the finance industry by making these services more efficient, convenient and accessible.
The success of fintech is evident: KPMG reported investment in fintech companies totalling $19.1 billion globally in 2015. Depending on who you ask there are between 19 and 25 fintech unicorns (companies with a valuation of over $1 billion) and UK-based companies account for more than half of all fintech funding in Europe.
Despite this impressive growth, sustained survival will be an uphill battle for many. As a result of the sheer size and power of the incumbent institutions, finance is more resistant to disruption than any other industry. Most banks are established institutions, with branches on every high street, which the majority of consumers still choose to trust with their money. To add to the challenge, the financial industry is heavily regulated and notoriously complex.
However, the proliferation of mobile technology and cheap computing power is beginning to level the playing field. Customer preferences are changing and many are already very comfortable with the idea of mobile payments and banking. Fintech start-ups have cheap access to millions of potential customers via mobile app stores and it’s never been easier to set up supporting technology on the cloud. Swelling resentment against the banking industry fuelled by repeated crisis and scandal has also given fintech companies an edge in their mission to take billions of dollars’ worth of business from the sector’s incumbents.
Within the loose definition of fintech above, the influence of the industry has the potential to spread to the furthest reaches of our economy. The kind of businesses we start, the scale of the governments we elect and even how we fundamentally trust one another will all be shaped by the innovation of this exciting sector.
End of Part 1
Next time we’ll take a closer look at some of the technology that underpins the fintech sector.