What are Fintech?

Fintech companies are a phenomenon that is becoming increasingly important for the economy, both global and Mexican. The openness offered by technology and the start-up boom have made more and more Mexicans join in using them.

The name derives from the combination of the words in English “finance” (finance) and “technology” (technology), so the translation of “financial technology” is not strange. However, the concept can be a bit more elusive.

When we speak of “Fintech” we can refer to a computer program, a new process, a new product or a new company (startup) focused on applying the latest technologies to improve the financial sector. We can even speak of this entire industry as a whole as the Fintech sector.

However, perhaps the most common is to use the term to refer to startups that have focused on the development of new technologies destined, in some way, to transform the financial sector. In this way, the majority of Fintech companies are rather small, but they seek to cover a market until now dominated by large companies and banks.

To achieve this ambitious goal, its allies are usually precisely those large companies and banks whose processes, within a dynamic world, are gradually becoming obsolete. In order not to be left behind and offer a better experience to their customers, legendary players hire or buy the digital solutions built by these startups.

Among the technologies most used by Fintech companies is Artificial Intelligence (AI), Big Data or Big Data, robotics and, of course, Blockchain. The latter is perhaps the most financially oriented technology, as it is born from Bitcoin, the first cryptocurrency in existence and, literally, it is a ledger built with cryptography.

Application areas

Naturally, payments and transactions are the first goal, but not the only one. Fintech companies also offer services in the areas of insurance, investments and trading, personal finance management, loans, consulting and they are even often included in cryptocurrencies and their different functionalities. Along these lines, we can mention the most common types of Fintech:

Payments or Paytech: the great goal in this area is to digitize any type of payment and ensure that these are immediate, regardless of the number of participating institutions or the distance between those involved.

Insurance or Insurtech: mobile apps, drones, Internet of Things (IoT), AI, Machine Learning and Blockchain are being used to allow insurers to reduce paperwork, personalize the experience of each client and create online markets.

Regulation or Regtech: technologies are used to facilitate and even automate the processes required by the relevant authorities. Reports, risk management, transaction monitoring and everything related to compliance with the laws, with the help of the latest technologies, enter this section.

Trading or Tradetech: in the field of investments, these technologies can reduce costs, refine possible market predictions and increase transparency in each operation.

Loans or Lenntech: the aim is to create smart and fast systems that allow users to verify the credentials of users online, review their credit history and evaluate possible income and guarantees. Facing the client, he would obtain almost immediate loans with low interest rates.

Banks or Banktech: tries to combine the most traditional services of banks (transfers, withdrawals, storage …) with the latest technologies, resulting in a faster and cheaper experience for customers.

Featured actors

As we mentioned before, Fintech already make up an entire industry by themselves. According to research by The Business Research Company, “the global financial technology market was valued at around $ 127.66 billion in 2018.”

Even in the midst of this prolific market, there are some players who stand out.

Ant Financial: It was founded in 2014 within China as an arm of the giant Alibaba. Its main product used to be Alipay, the payment platform; but it soon expanded to offer other technological financial services. It is considered the Fintech company with the most value in the world.

Adyen: of Dutch origin and created in 2006, this firm allows other companies to accept payments through any sales channel, from anywhere in the world. It has had Facebook, Uber, Netflix and Microsoft as clients.

Xero: created in 2006 in New Zealand and its main objective is to provide easy-to-use accounting software to other companies. It may not sound very innovative now that other options have entered the market, but Xero was among the first.

SoFi: dates back to 2011 and was founded in San Francisco (USA) by four students from the Stanford Graduate School of Business. It focuses on online loans of all kinds, from students to mortgages. It also offers services for the management of personal finances and life insurance.

Klarna: is a Swedish firm that was born in 2005 with the goal of facilitating online shopping, both for buyers and sellers. It offers various financing methods and an organized directory. Its clients include Disney, Samsung and Spotify.

PayPal: This is probably the best known name and almost everyone in the West knows what it is for: instant international payments. Of American origin, he was born in 1998 to train in the world of Fintech.

In Mexico, thanks to the Fintech law enacted in 2017, there are 200 companies registered in the sector that fully comply with regulations, a number that is increasing, so it should not surprise anyone that, at some point, a company Mexican Fintech joins the world majors, since, according to Business Research research: “(the Fintech industry) is expected to grow by 2022 at an annual rate of 24.8% to reach an approximate market value of $ 309.98 billion dollars ”. From now on, everything indicates that a bright future awaits Fintech companies.