Banks are not glamourous — FinTech is. It’s fancy to get excited over FinTech these days. But why exactly should we?
Some background information for novice readers: FinTech means financial technology. It encompasses a new wave of companies changing the way people pay and send money, but also borrow, lend, invest. The most disrupted sectors — or at least the ones that we hear the most about — are payments and money transfer, represented by companies you’ve certainly heard of (TransferWise for money transfer, Square for mobile payments…), crowdfunding (Kickstarter, Crowdcube, Smart Angels…), and peer-to-peer lending (LendingClub, Zopa, Prêt d’Union…). So where’s all that happening? Well, London is clearly the leading hub, followed by New York, and other cities fighting to get to the top: Paris, Hong Kong, Singapore, Tel Aviv… Just to give you an idea, FinTech investments reached $2.97 billion in 2013 and is expected to climb up to $8 billion in 2018, so there’s room for new players!
How it begun
The birth and rise of FinTech is deeply rooted into the financial crisis, and the trust crisis it generated. People’s anger at the banking system was the perfect breeding ground to financial innovation. Good timing, also because digital natives are now becoming old enough to be potential customers. And their preference would definitely go to mobile services they understand and master, instead of bankers they cannot relate to. FinTech comes in, offering new and fresh services, at lower costs, through well-designed platforms or mobile apps.
To sum it up, FinTech companies gather the 3 Ts needed to seduce targeted customers: Trust, Transparency, Tech. Responding to a trust crisis towards banks, startups offer services at a lower costs in a transparent way, through easy-to-use interfaces.
More than a fuss: what FinTech brings
In 4 words: Power to the people! Take money transfers for instance. By allowing transparency and cutting middlemen fees, FinTech startups enable individuals to get control over their money. They know how much they pay, and incidentally, this is less than what they used to pay. This innovation is actually having a really big social impact, as startups are specializing into a certain kind of money transfers: remittances (money sent by foreign workers to their home country). WorldRemit and Remitly are attracting serious attention, having respectively raised $100 million and $12.5 million in series B. Not so surprising, as they’re entering a market worth no less than $550 billion.
Another way of giving people power is to provide them with… money. Let’s not forget that the financial crisis not only provoked a lack of trust towards bank — it also made it more difficult for people to make loans. Peer-to-peer lending has broadened the availability of financing, enabling people and businesses to borrow money easier, faster, and in a more transparent way. These startups have basically applied disintermediation to credit, connecting buyers and sellers through marketplaces. At the forefront of this trend stands Lending Club, that has just raised almost $900 millions in one of the largest IPOs of 2014. Quite the thing.
FinTech is also widening access to investment opportunities, through — you guessed it — crowdfunding. Let’s not forget that equity investment was once restricted to people with big money. It is now accessible to all! If you have a small ticket to invest, you can still have an impact and potentially get some benefits. Kickstarter, Indiegogo, Crowdcube, just scroll and choose your project. We seem to be already accustomed to this sector of FinTech, and tend to forget how revolutionary it is!
Generally — and I think this is the biggest revolution — FinTech is providing access to information, that once belonged to a happy few, to more people. In our “information economy”, that’s a big democratic move. This is what we are trying to achieve at The Assets, building a worldwide platform for business assets giving all companies access to crucial information and new forms of liquidity.
FinTech has still unveiled many “disruptions”, and is probably keeping many more under its hat. I’m quite sure about it: we will get used to the new habits FinTech startups are introducing, and banks should not wait any longer. Partner, acquire, or compete — they’ll need to choose… And choose fast!