How did the Fintech Industry come about?

The Fintech industry is growing rapidly.  But how did it come about?

To start your own bank, insurance company or private equity company is virtually impossible but has now become a possible reality of sorts.

While the barriers to entry remain high and the veteran banking companies are controlling global finances and making huge profits for themselves and others, a new market is emerging.

The financial crisis of 2008 ushered in a new model in alternative financial services, giving rise to Fintech Industry.  Driven mainly by technology and changing consumer needs, this new model is growing at an explosive rate.

New Business Models in the Fintech Industry 

Every area of financial services is undergoing disruptive change and the alternative finance market is producing a myriad of new and totally innovative business models.  There seems to be no end to the wave of change sweeping through this industry.

Some of the examples of the Fintech industry business models include the following:

  • Market place lending, including peer-to-peer and peer-to-business lending;
  • Equity crowdfunding;
  • Alternative forms of invoice or real estate financing;
  • Payments systems;
  • Disruptive insurance;
  • Foreign exchange and other forms of remittance business;
  • Providing innovative software to established banks and other financial services firms to deal with risk and regulation; or
  • Developing an innovative platform for wealth management or trading.

This disruption as it is being referred to, is further explained in the Fintech Taxonomy Map where you will find a myriad of different business models that you can tap into, if you decide to launch your very own alternative finance business. Click here to access this dynamic map and help us keep it up to date, by commenting on the map or adding newly discovered business models.

What were the drivers of the Fintech Industry?

The traditional financial services giants dominated for hundreds of years, so how are they now being disrupted?  Here are just some of the reasons that gave rise to alternative finance:

  • The unwillingness by banks to lend to small and medium sized businesses and individuals perceived as higher risk, creating a pent up demand:
  • The lucrative venture capital market was closed to retail investors;
  • Traditional financial services players can’t cater to the needs of millennials and new age consumers, so they seek alternative models;
  • Technological innovation allow alternative finance players to do thing better, cheaper, and faster;
  • Traditional players thrived on opacity, and the new age players are bringing greater levels of transparency and therefore, trust; and
  • Financial services employees are seeking more rewarding careers and want the ability to make a genuine difference – a job at Goldman Sachs is no longer a dream of a Harvard Graduate.

Alternative finance providers don’t necessarily have to be start-ups.

Even huge non-financial players like Amazon have begun to explore the opportunity to disrupt financial services.  They recently announced an online lending capability geared towards selected businesses trading their good on Amazon’s retail platform.  In fact banks face a huge threat from large technology players, simply because consumers now trust their technology providers, like Google and Amazon, more than they trust their financial services providers.

The Fintech Industry Gold Rush!

The commonality in most of the disruption taking place in financial serviced is a direct result of technological innovation. Thus the term “FinTech” was coined – it refers to technology led financial services.

New entrants are flocking to this market because its now accessible to any entrepreneur or even employees who want to become financial services entrepreneurs.  There are hundreds of new start-ups emerging in alternative finance, across the globe every, and one would be forgiven for  thinking this is the next gold rush.  It may well be, because there are not many industry’s growing at close to 200% per annum.

However, even though the market is ripe for startups, it has challenges which must be approached armed with knowledge and proper planning. Financial services is highly regulated, and launching in the wrong way can not only adverse financial consequences, but also personal liability for the founders and directors.  This is because they could inadvertently end up breaching some regulatory requirements.  So treat carefully and seek professional advice

Launching into the Fintech industry the Right Way is the next post. Stay tuned for the awareness, knowledge and proper planning checklist all of which will ensure success of your startup.

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