No doubt you’ve heard about the big buzz in Fintech.
But what is Fintech?
This page is your resource to learning more about Fintech. We’ll keep it up to date for you, so be sure to bookmark it.
The word “fintech” actually made its way into the Oxford dictionary and is defined as
Computer programs and other technology used to support or enable banking and financial services
Lets look further.
Turning to Wikipedia, it defines “Fintech” as
Financial technology, also known as FinTech, is a line of business based on using software to provide financial services. Fintech companies are generally start-ups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software
Are Fintech Companies Start-Ups?
Wikipedia seems to suggest that Fintech companies are mainly start-ups?
Investopedia clarifies this position, and confirm that Fintech is not confined to start-ups only.
Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century. Originally, the term applied to technology applied to the back-end of established consumer and trade financial institutions. Since the end of the first decade of the 21st century, the term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even crypto-currencies like bitcoin.
A 2014 research report commissioned by UK Trade and Investments, make a distinction between “Traditional and Emergent” Fintech.
Traditional Fintech include market players that are generally perceived as facilitators, typically larger incumbent technology vendors supporting the financial services sector. Banks and other traditional financial services players can also leverage Fintech to improve products and services to their customers, making them Fintech players.
Emergent Fintech include disruptors and innovators who disintermediate incumbent financial services firms or provide new technology solutions to service existing needs.
Is Alternative Finance the same as Fintech?
This is an often asked question. Firstly, “Alternative Finance” is not defined in the Oxford Dictionary as yet, however it refers to financial products and services provided by non-mainstream players such as banks and insurance companies.
So Peer to Peer lending (P2P), for example, is an alternative finance business. It just so happens that P2P is also a Fintech firm, because an electronic platform is central to their business model, where they arrange loans for borrowers directly from lenders.
But not all alternative finance businesses are Fintech companies. For example, a “challenger bank” provide similar services to what a bank provides, however, instead of disruptive technology, they may pursue a “better customer service” or “cheaper pricing” strategy.
In general though, most alternative finance businesses are being built on the back of technological innovation and therefore, its safe to classify them as Fintech players.
What are the Different Types of Fintech Business Models?
Fintech is a broad category describing an entire market. And it’s quite hard to try and get your head around this rapidly evolving market. But knowing the landscape can have great advantages:
- If you are just starting out, it will give you a good idea of what’s working and what is not, and more importantly, which segment provides the best opportunity for fastest growth;
- If you are already a Fintech pioneer, then knowing the landscape will help you explore market gaps that you can expand into;
- You will have a much better handle on new and emerging competitors threatening your business model; and
- If you are an incumbent player, then knowledge of the landscape will help you identify acquisition or joint venture partnering opportunities.
For your and our benefit, we have started to map out the Fintech landscape. You can access this map by Clicking here. You also get a chance to help us build this map and keep it updated, so don’t forget to leave your comments, observations, or suggested changes to the map.
If you are looking to get started in Fintech, but are not sure which business model to pursue, then sign up for out free course: “Regulated Fintech – How to get Started in the Right Way”. in Part 2 of this three part Free course, we examine the different business models in the the following areas: savings and deposits, capital raising, payments, insurance, and investment management. We also give you practical business ideas with reference to firms that are already playing in each of these areas.
How Big is the Fintech Market
According to a recent (2015) Accenture study, global investment in Fintech tripled from $4.05 billion in 2013 to $12.2 billion in 2014, with Europe being the fasted growing region in the world, dominated by the United Kingdom and Ireland.
So why is venture capital chasing the Fintech sector so aggressively? That’s because this market is growing faster than any other market in the world. Depending on how you define Fintech, the UK market has grown by around 200% year on year. This is impressive growth/
If this the next gold rush?
What’s Driving the Growth in Fintech?
The three primary drivers of Fintech are:
- Technological innovation;
- A more internet savvy consumer who trusts technology companies more than their banks (such as the Millennials); and
- Believe it or not, regulation and Government support.
We cover these topics in great detail in Part 1 of our free course “Regulated Fintech: How to get Started in the Right Way”. Access this course and a host of other educational content by clicking here now.
Are all Types of Fintech Companies Regulated?
Now a Fintech business is a financial services business. We all know that financial services is a highly regulated market. So why should Fintech be any different.
Remember, the firms are regulated through the activities they carry out. So if the Fintech firm provide what the regulator defines as “regulated activities”, then they will be regulated. Being regulated means that he firm has to get a “license” (or become authorised) before they start trading and once authorised, there is an on-going need to ensure they comply with the applicable regulations.
The UK was a pioneer in bringing about regulatory certainty on Fintech. In 2013, the Financial Conduct Authority (FCA) introduced distinct regulation for crowdfunding and peer to peer lending. In 2014, they introduced an Innovation Hub, aiming to help innovative financial services firms navigate through the complex regulatory maze.
In the UK, donation and rewards based crowdfunding, as well as a properly constructed invoice financing business is not regulated (as at July 2015). This may change in the future.
For firms that want to enter this market but don’t want to be regulated, there are regulatory exemptions that they can take advantage of. But be cautious as you will need to meet stringent conditions and ensure that your business processes are structured in a way that keeps you out of the regulatory net. Remember though that FCA can also regulated such exempted businesses in the future and maybe also make the regulation apply retrospectively.
Want to get started in Fintech?
Love the developments in Fintech? Do you want to be a part of this exciting market, but you don’t know how to get started? Worried that you won’t be able to deal with the complex regulation or regulation will delay your launch significantly?
Help is at hand. We have put together a comprehensive and FREE three part course: “Regulated Fintech: How to get Started in the Right way”. By signing up for his course, you will also have instant access to a library of invaluable educational content that will help you get started and grow your regulated Fintech business, regardless of whether you are a start-up or a multinational incumbent financial services player looking to get involved in Fintech.