What is FinTech? An Overview
If we stop and think about it for a second, FinTech plays a significant role in our everyday lives. On our way to the office in the morning, we stop by the local Starbucks for a cup of Joe and pay with the coffee chain’s app. Later in the evening, we hop on to an Uber to meet with a couple of friends for drinks. But how did we get here? By here, I don’t mean the pub, but FinTech’s evolution. And what is FinTech, really? Let’s discuss.
- FinTech, a combination of “financial” and “technology”, refers to solutions that aim to improve and automate the use of financial services.
- FinTech involves industries like retail banking, investment management, fundraising and, of course, cryptocurrency.
- The 5 biggest FinTech companies in the world are Ant Group, PayPal, Stripe, Fiserv and Adyen.
What is FinTech?
Let’s begin by defining the basics.
FinTech can be described as a combination of “financial” and “technology”, referring to relatively new but also vague terms helping individuals or businesses manage or obtain actionable data for financial usage.
FinTech covers industries like retail banking, investment management, fundraising and, of course, cryptocurrency, helping firms create new opportunities.
The History of FinTech
FinTech 1.0 (1866 – 1967)
With the help of the pantelegraph and network infrastructure, the FinTech era started to crawl. In 1918 the first step of digitalisation in money began. One life-changing moment in FinTech 1.0 was the introduction of the Diners Club card in 1950 by Frank McNamara due to an embarrassing moment he faced in a restaurant by forgetting his wallet, followed by Amex in 1958 and Quotron instigating screen-based stock data in 1960.
FinTech 2.0 (1967 – 2008)
The new era of digitalisation began in 1967 with Barclay’s installation of the first ATM. 4 years later, in 1971, NASDAQ was founded as the world’s first digital stock exchange.
1970 was another critical year since SWIFT was founded, but the industry had to wait till 1977 for it to go live with more than 500 member banks, although it was introduced as an industry standard in 1973. The 80s was the beginning of e-trade and online banking. Nottingham Building Society was the first to launch internet banking in 1983, and nearly after a decade, Wells Fargo introduced its online banking.
In 2000, Paypal was introduced as an online wallet due to an increase in online shopping by the merger of X.com and Confinity.
FinTech 3.0 (2008 – Current)
Due to the 2008 crisis, the FinTech industry required a series of reforms. Strict regulations in traditional banking were a natural outcome, and operational cost reduction in the industry became obligatory. P2P, Wallets and Bitcoins led the drive to a new era.
Major developments in the financial industry occurred in the US and Europe due to consumer changes with access to the Internet. China, Africa and India became higher FinTech adaptors due to physical limitations. Alipay, m-Pesa and Indian IT companies led industry development.
The Future of FinTech
The COVID-19 pandemic has driven the FinTech 3.5 era to innovate and continue investing in blockchain and open banking technologies. Machine learning will set a new bar for how individuals interact with money or finance-related topics.
One of the major changes within the industry is how money is and will be collected and managed. New digital banks do not require branches which lowers costs and provides comprehensive solutions for the business.
Moving forward, personalisation and automation will continue improving user experience in a secure and decentralised way. With the help of machine learning and AI-related technologies, self-learning apps will take control of unnecessary spending and decide on some hidden gems.
The FinTech Landscape
Technologies helping the community in financial services deliver products to manage their financial relationships.
These are some major FinTech trends:
- Open/ Challenger Banking: Platforms using APIs for transferring and visualising banking information
- AI Machine Learning Platforms: Platforms for fraud detection and compliance
- Retail Investment and Lending: Investment to lending
- Blockchain: Contract and Identity
- Payment: Covers from crypto to FX transfers
- Security and Identity: Client onboarding (KYC), mortgage and real estate, simplifying the process, digital user identification
5 Biggest FinTech Companies in the World
According to InsiderMonkey, these are the 5 biggest FinTech companies in the world right now:
1. Ant Group
Financial services offered by Ant Group include online payments, credit products, and credit cards. The group also owns and operates Alipay, one of the largest online payment platforms in the Fintech industry.
A leader in the FinTech industry, PayPal (NASDAQ:PYPL) provides a wide range of financial services and products, including online payments, mobile payments, and credit products. As digital payments continue to grow and shift away from traditional banking products and services, PayPal is well positioned to maintain its leadership position within the FinTech industry.
As one of the most well-funded startups in the fintech industry, Stripe is among the top companies in the field. Stripe offers the technical, fraud prevention, and banking infrastructure required to operate online payment systems.
Fiserv (NASDAQ:FISV), founded in 1984, is an American multinational FinTech company that provides account processing and transaction processing services, electronic bill payment and presentment services, and fraud detection and prevention services. The company also offers core account processing systems, document imaging and document management systems, and online banking and bill payment solutions.
Founded in 2006 in Amsterdam, Adyen (OTC:ADYEY) is a leading Dutch FinTech company that offers payment processing services to retailers, eCommerce companies, airlines, etc. It provides online and mobile payment solutions, point-of-sale (POS) solutions, as well as fraud and risk management solutions.
With more startups entering the market, the central question is, “Can they deliver investors’ expectations?” Will they be able to gain significant market share while compensating regulatory capital since financial services are heavily regulated? How many FinTechs will be able to survive, and eventually, who will merge with whom?
Because most FinTechs are trying to resolve and formulate an issue by creating a customised path, they will continue facing resistance from local governments.