FinTechs are enjoying global success. But what exactly are financial technology companies?
The term “FinTech” is derived from digitisation in the financial sector. FinTechs are companies that offer solutions in the area of technological financial services, which includes issues like payment, banking, alternative payment methods, factoring, credit, finance management (PFM), API banking, saving, peer-2-peer lending and insurance. Applications include everyday mobile or web-based payment, account management and investment strategies, loans, insurance and donations.
For the first time: Financial development outside of banking
The digitisation of the financial sector can be roughly divided into two stages. The first has been under way for quite some time. Existing products were made available online. Online banking has been around since the end of the 1980s. This includes making payments online, which became possible at the start of the 1990s. The second stage was triggered by the ever-more widespread use of smartphones, laptops and tablets coupled with the ability to be almost constantly connected to the internet. As a result, new possibilities were opened up for the entire financial sector, for the first time not just in relation to banks.
The FinTech market is growing at a tremendous pace and this is clearly reflected in the investments being made in this field. A study conducted by management consulting company Accenture found that global investment in FinTechs tripled to total USD 12.21 billion between 2013 and 2014. The majority is attributable to the American market. According to McKinsey, there are now more than 12,000 FinTech companies worldwide. Europe has been leading the way over the past few years with growth of 215%. The UK and Ireland account for 42% of the overall European market.
FinTechs are focusing on the user’s needs
FinTechs exploit all the opportunities offered by big data and technological advances to deliver financial solutions which are adapted to the modern user. FinTechs focus on the needs of users: maximum user-friendliness, easy operation and complete automation. For the most part, the products are transparent and cost-effective.
FinTechs are particularly common in the field of investment and investment consultancy. They allow users to gain a comprehensive and concise overview of all deposits, accounts and insurances or set up an asset portfolio while at the same time supporting the planning of personal investments. According to the Statista graph below, growth will be particularly pronounced for mobile payment solutions at the point of sale (POS).
FinTechs will handle 30% of all banking business by 2020
FinTech companies have a variety of different business models. There are providers that offer solutions for the banking environment, tasked with bringing investment processes and account management into the digital era. Other models, such as peer-to-peer or crowdfunding platforms, provide alternative solutions for banking business. It is not uncommon for partnerships to be established with banks. For example, they can act as the technological provider or legal legitimation for payment processing. Four in five FinTechs are working with banks.
There is a clear trend: the industry will continue to record strong growth. Various different calculations testify to this trend. Accenture predicts that around 30% of all banking business will be conducted through FinTechs by 2020. The digital age is infiltrating ever-more areas of everyday life, which means the world of finance is constantly changing.