Why the Fintech Market is So Lucrative – Proving the Business Case

The Fintech market is really hot right now! Why is this the case?  In this article we explore the business case for why the Fintech market is so lucrative.

How Big is  this Market

The first thing that caught our eye is the fact that venture capitalists are so aggressively chasing the Fintech sector, indicating that its a market worth looking into further.

According to a 2015 Accenture study, “Investment in financial-technology (Fintech) companies grew by 201% globally in 2014, compared to 63% growth in overall venture capital investments, confirming this sector as a hot ticket.”

A 2014 UK Trade and Investments study estimated that the Fintech market in the UK is worth approximately £20 billion in annual revenue and growing fast.   Surprisingly, only 18% of this revenue is however generated by the more disruptive Fintech start-ups and small to medium sized firms.   The revenue is split between Payments (£10 bn), Software (£4.2bn), Data and Analytics (£3.8bn), and Platforms (£2bn).

At this time, the innovative market segment tends to be dominated by startups. But understand, these are not micro, bootstrapped businesses. There are well-funded, entrepreneurs, ex-bankers and other financial services professionals venturing in this lucrative space.

The alternative finance market as a whole is booming. A comprehensive 2014 study by Nesta proves the market’s exponential growth:

  • 2012 – £267m
  • 2013 – £666m
  • 2014 – £1.74bn

And further:

  • Peer to business lending was the fastest growing segment, growing by 250% between 2012 and 2014
  • Peer to consumer lending follow next at a growth rate of 108%
  • Invoice trading grew by £174
  • Equity crowdfunding by a staggering 410%

Nesta’s research predicted this market to grow to £4.4 billion in UK by year end 2015.

Whilst the US has one of the largest Peer-to-Peer Lending market in the world, by volume, the UK’s market ($6.6bn in 2015) is 72% larger on a per capita basis, according to a research report by Business Insider in 2015.

The alternative finance market in Europe reached nearly €3 billion ($3.9 billion) in 2014, a 144% jump, and peer-to-business peer loans volume in France grew almost 4000% to reach €8.2 million ($10.6 million).

Even though the size of the market in the UK pales in comparison to the US, the growth is at such a rate that it make sense why the venture capitalists are so aggressively investing in this new market.

The incumbent players are in the game as well. They are creating a support network of accelerators and incubators and mentoring new startups in an attempt to leverage some form of benefit from this market.

No matter what angle you’re looking to get into this rapidly growing market, whether it’s a startup yourself or expanding your already successful financial services or non-financial services business, there’s compelling evidence that this market is worth a direct or indirect investment.

Opportunity to make a Difference + Profit

Fintech’s increasing popularity, ability to generate huge profits and astronomical growth are only some of the reasons to consider getting into a start up now. This is the time for Fintech startups to really make a lasting contribution toward making financial services more transparent, efficient and to bring access to finance when there are so many barriers within the traditional finance model.

Peer to Peer lending has broken the traditional bank lending mold by providing much needed finance to the high risk consumers and has therefore proved to be a more favorable alternative to the extortionist pay day lender industry.

Peer to business lending has also made access to startup funds more accessible and makes the process of obtaining credit quicker than traditional banking.

Overall economy is strengthened as the outcome of the newly acquired loans help small and medium-sized companies create jobs, spend and invest.

Even if you choose to remain in the traditional financial services space, you still have a chance to improve consumer relations and rebuild that trust which has been lost as a result of the financial crisis.

Many people within the financial services industry were affected by the financial crisis of 2008.

Because of the innovative financial emergence, it has now made it easier for anyone to enter into the industry and begin their own ‘lending’ business. They can apply the changes that they would like to have seen in the traditional financial services business to their own Fintech startup.

So What are the Barriers / Challenges for Fintech?

Barriers to entry into the Fintech model exist but are minor and with knowledge, can be mitigated.

The following are 3 barriers which, in my opinion are the only barriers which exist in the Fintech startup venture.

  1. Capital or seed money to launching the business. Because Fintech is a technology first business, it doesn’t require the same expensive infrastructure the bank braches or building would. This significantly drives down the cost of launching.

It has been discovered that funding this attractive business model isn’t difficult with its incredible growth and top talent is highly interested and involved more so than other traditional businesses, which is obvious by its tremendous demand and favor.

  1. Technological barriers. Without the right technology, you won’t be able to start much less maintain your Fintech business. However, with the right talent and capital, anything can be done. However, some Peer to Peer and Peer to Business models are white labeled and ready for plug and launch.
  1. Regulatory barriers. Because certain business models will require an actual regulatory license; this in my opinion is the greatest barrier to entry. Financial services is the most highly regulated industries in the world so this makes sense.

Because of these barriers it makes sense to have someone who is knowledgeable when starting up your own Fintech business.  It will help you avoid the mistakes already made by pioneers and ensure that your venture starts in the right way and you are able to get into the market fast.

Vedanvi offers consulting for those wanting to startup a Fintech business or learn more about the industry and how you can benefit in your current business. In order to safely navigate through the regulations and continual rules, having someone on your side to ensure you’re compliant is a must.

Contact us today for a free consult to see how we can better meet your needs.

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