#EmergingTechnology: Fintech

Over the course of time, The Financial Services Industry has seen a shift in methods and platform used for delivering the services. Financial Insitutions such as Banks, Insurance Companies, Investment Houses, Real Estate Firms, Private Equity Companies and even the Securities Firms are all incorporating technology and innovation in their operations and conduct.

Technology employed in improving financial activities and making the services accessible to their clients is commonly referred to us Financial Technology or abbreviated as “Fintech”.

Primarily, Fintech was applied to traditional brick and mortar banks to ensure systems and processes are automated. The technology uses Internet, Software, Mobile Devices, Artificial Intelligence, Blockchain, Robotic Process Automation, Big Data, Virtual Cards, Open Banking and even Cloud services.

Fintech started picking up the pace in 1990s, with the dot.com bubble which allowed for technology to come into existence and entrepreneurs to form companies out of it. Fintech, then assumed the identity of a new business model, which gives firms and businesses a competitive advantage over others when it comes to seek funding, retain customers and having broad range of research and data on customers they serve.

Towards the beginning of the decade in the 2000s, Fintech went from being used in banks to firms that perform financial services as that of the bank, which in turn has steered competition in the Industry. Fintech now operate in areas such as Insurance, Digital Banking, CrowdFunding, Digital Currencies, Accounting, Consulting, Venture Capital, Asset Management, Analytics & Data Management, Business Solutions, Blockchain, Risk Management, Robo-Advising, Personal Finance, Peer to Peer Lending, Stock Trading Apps and even Digital Banking.

The Fintech Ecosystem now encompasses well established and online banks, Regtechs, Robo Advisors & Personal Finance, Payment Gateways & Remittances Firms, Blockchain & Bitcoin Firms, Insurtechs and Alternative Finance.

Financial Technology has a stronghold in the West, Sillicon Valley, the heart and nucleaus of world reknown startups. Cities and Countries like London, Singapore, New York, China and even India also hold their own as  Fintech Hubs.

The West, particularly United States is a home of many Fintech Firms. These Firms are spread across cities and areas such as Seattle, San Franscisco, New York, Los Angeles, Atlanta and even Washington.

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The Fintech Ecosystem in the United States, Source: BI Intelligence

In Europe, Fintech has risen to be the largest venture capital investment choice. It is the recipient of 20% of all Venture Capital in Europe, a higher portion compared to how it fairs in Asia and USA. This massive investment has driven the firms to success, as they have secured funding for their operations. Financial technology, in turn has attributed twice more value in Europe compared to any other tech sector.

 

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European Fintech Firms, Source: Medici Website

Asia has since began to pick up pace in the Fintech space. Countries like China, Singapore, Israel, HongKong and even India. With China and Hong Kong being extra aggressive with massive investment and funding to ensure these firms are scaling up their operations. The Investment Support of these two Asian Players is backed by The Government and Venture Capitalists.

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Example of HongKong fintech Firms, Source: Medium

Singapore is considered a modern hub, which has attracted foreign investors and players towards the fintech scope. The Fintech growth has been spearheaded by Global Talent that are behind the successful fintech firms.

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Example of Singapore Fintech Firms, Source: Seedly Reads

India on the other hand, is not far behind, with a fair proficient and inexpensive talent, of whom the majority are interested in technology and engineering. The unbanked population is also an asset to the country serving as a catalyst to create fintechs which will provide financial services to this particular segment.

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Example of India Fintech Firms, Source: CB Insights

Israel has fostered a positive environment for the growth of Fintechs. The 14 Global Innovation Centres, 3 Global Fintech Hubs, Steady Financial Sector and Policy Support and Strong Global Investor Interest has catapulted Israel to become a hub for strong fintech ecosystem.

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Example of Israel Fintech Firms, Source: The AI Hub of Israel

The Fintech Space is growing at a promising pace, which in turn has attributed to healthy competition between the firms and the traditional financial institutions. With the emerging trends in technology, innovation in this space is yet to cease.

Major Tech players are also venturing in this space with a vision to gain a significant market share. Last year, Facebook announced its digital currency Libra, with which they bank on their large subscribers base to make it one of the common unit of exchange. Apple, in partnership with Goldman Sachs developed a credit card on August last year, to be used with Apple Pay on Apple devices to conduct transactions through virtual payments.

Despite the growth in this sector, there exist the risk of mishandling the data that belongs to the customers of these firms. The question of how these firms use and plan to use the data is still unaswered and questionable at length.

As some firms, specialize in realms which deny regulatory authorities to exercise power and monitoring, the firms are making it hard for Central Banks to monitor transactions conducted through the channels, which in turn make it hard to discern whether or not the rules and regulations are adhered to.  A good example is in East Africa, where most clients are unbanked and prefer Mobile Fintech Firms to banks. The existence of fintech firms such as M-Pesa, has clients especially those stationed in rural areas to opt for them other than banks. This is because these firms do not request too much KYC Documents each time transfers are done, and sometimes no document, not even an ID is requested while sending money.

As a result, billions of shillings are transferred through these channels over the year, with Central Bank having little to none monitoring procedures for these. Only of recent, have the governments of these particular states started to take action in the monitoring of these firms. Fintechs that were offering payment gateways  for bills like electricity, water are now merged with Government Payment Gateways to ensure bill payments are monitored to ensure they adhere to stipulations set in place.

Nevertheless, there is still room for both Fintechs and Traditional Financial Firms to co-exist.  The former has a more direct access to clients due to a much more personal interaction they exercise when dealing with them. The latter however have a strong financial balance sheet and strong resources for longevity and consistency. When they pool their resources together, they are bound to serve clients in an efficient manner and effectively in accordance to the regulatory bodies of the particular institution they operate in.