WHY DOES FINTECH MATTER?
Pantelegraph invented in 1865, which is most commonly used to verify signatures in banking transactions, is considered to be the first example of FinTech solutions that invented. Then it evolved and showed us in the 1950s-1960s that credit cards and ATMs could be real. Nowadays, everyone uses mobile payments, one of the blessings of fintech, as a digital payment method. With each passing day, we find that we are more and more intertwined with fintech solutions.
WHAT IS FINTECH?
FinTech combines the finance and technology industries. FinTech generally refers to the use of a new technology in the financial sector to reduce the transaction costs, operations, remittances, etc. FinTech is a concept that enables companies, businesses, and manufacturers to better manage their financial operations with the help of technology. At the same time, Fintech enables financial service providers to serve their customers better. And this is done by using technologies like blockchain, AI, smart contracts, biometrics, mobile apps, e-commerce, etc. The main aim of FinTech is to make financial transactions much faster and convenient. FinTech is used for various purposes ranging from payments to logistics solutions.
BENEFITS OF FINTECH
According to the Central Bank of Ireland (CIB), the potential benefits of FinTech can be listed as follows:
- Ease and speed of access:
The services and products offered by a typical FinTech company are usually provided online so that customers can easily and quickly access them.
- Diverse products and services:
Since FinTech companies operate globally, customers can see a variety of products and services and make the best decision.
- Reasonable offers:
FinTech companies usually offer relatively affordable prices to their clients thanks to their cost structure. Most FinTech companies operate online and they do not have to spend on structure and etc. For this reason, they can offer relatively affordable prices.
- Data storage:
Since FinTech firms store the data of their customers, they can offer their services and products in a more customized way.
POTENTIAL RISKS OF FINTECH
As reported by the Central Bank of Ireland (CIB), FinTechs may pose some risks. These risks can be listed as follows:
- Untransparent rights:
Unlike traditional financial institutions, FinTech companies are new to the market. Therefore, they could not be well regulated. And their business models are also different from those of financial institutions. Therefore, if something goes wrong, customers’ rights cannot be clearly defined.
- Make a hasty decision:
If you do not meet the salespeople in person and do not shop around for products, it can be a problem.
- Technology related issues:
The product purchased online can expose the customer to technological risks. For example, the customer’s personal information can be misused.
- The technology can be exclusive:
Since customers do not have the same information on how to use the technology, some of them may be excluded from the FinTech ecosystem.
HOW HAS IT AFFECTED THE FINANCE ENVIRONMENT?
Initially, there was a competition between FinTechs and traditional finance entities. Some of the authorities believed that FinTech will destroy financial entities and change the rule of the game. But, everything has changed as time goes by. Now, traditional entities have realized that they can cooperate with FinTech companies.
Banks and other traditional financial institutions have chosen to merge and partner with FinTech companies for the possibilities provided by the technology such as better customer services, improved financial security, customer satisfaction, etc. In this partnership, traditional entities usually provide funds to FinTech startups and unicorns to finance their ready projects in exchange for having digital solutions. Let’s look at some of the up –to- date metrics to make more sense about this relationship.
In this metric, we can observe that Corporate Venture Capital (CVC) backed globally funding has reached to $78.7B value which represents a 133% year-over-year increase. On the other hand, the number of deals backed by Corporate Venture Capital in the world has risen to 27% compared to the first half of 2020. This data shows that corporate firms are playing an active and important role to finance unicorns and startups.
CBInsights’ metric shows the 10 most active CVC investors in the first half of 2021. As you may notice, Google Ventures (GV) is the top corporate venture capitalist with 64 new companies in the first half of 2021. GV is followed closely by Salesforce Ventures. It invested in 59 new companies in the first half of 2021. This is another metric that shows us the important role of corporate funding for startups.
In this metric, we look at the 20 largest FinTech companies globally by market cap. Paypal tops the list with a valuation of more than $341 billion. Paypal is followed closely by Ant Financial Group with a valuation of $312 billion. We can clearly see that FinTech is a multi-billion dollar industry. The total market cap of these top 20 companies is almost $1,340T.
FINTECH’S FUTURE
This metric forecasts the global fintech revenue for 2019–2024, which means it is predicted before the Covid-19 breakout. As you can see, according to the Deloitte report, global fintech revenue will grow at a compound annual growth rate of 11.7 percent through the end of 2024.
Apart from this, the Global Fintech Market Research Report predicts that the global fintech market will reach $326 billion by 2026, with a compound annual growth rate of 23.41%.
When we look at the metrics above, we can see that FinTech is one of the most important technologies in the world. Since the start of Covid 19 pandemic, we have become more and more intertwined with FinTech, whether it is online payments or contactless financial applications. If we assume that digitalization will increase even more in the future than it does today, even without looking at the metrics, it is possible to predict that FinTech will play an important role in our future.
HAZIRLAYANLAR: Göksel Ediz YİĞİT, Mustafa NASIR
METRIC SOURCES:
https://www.marketdataforecast.com/market-reports/fintech-market
https://www.cbinsights.com/reports/CB-Insights_CVC-Report-H1-2021.pdf?
SOURCES:
https://www.forbes.com/advisor/banking/what-is-fintech/
https://geniusee.com/single-blog/fintechs-impact-on-the-future-of-banking-and-financial-services
https://www.nytimes.com/2016/04/07/business/dealbook/the-evolution-of-fintech.html
