It’s Surprising How Most of Us Are Not Even Aware of the Term “Fintech”. Learn That and 15 More Things.
It’s fast become one of the big buzzwords in business and technology. It’s one of the hottest properties to invest in. And you can be sure that it’s only going to get bigger and bigger.
But stick with us until the end, and you’ll see that a lot of people still have no idea what the word Fintech means.
You don’t need a degree in computer science — or finance — to figure out that it’s an abbreviation for Financial technology.
When it comes to Fintech, whether you’re in the dark or well clued up, we thought we’d shed a bit more light on this hot topic.
Reading is fun, but not so much when it’s a finance article. Here’s a vivid video for this topic on our YouTube channel:
With that added, let’s move on to the first thing you never knew about the Fintech industry.
Traditional Banks Are Worried About It
And with good reason too. That’s because until a few years ago, banks had a tight hold on pretty much anything we did that involved money. And being the huge, bloated dinosaurs that banks are, there wasn’t exactly much incentive for them to innovate or be competitive.
Fast-forward a few years, and a few leaps ahead in digital technology, and it was time for smaller, more agile players to make an entrance. You got it — Fintech. And in the last decade, they’ve been giving banks a real run for their money.
As Arvind Sankaran, innovation expert and Fintech VC put it, “We’re witnessing the creative destruction of financial services, rearranging itself around the consumer. Who does this in the most relevant, exciting way using data and digital, wins.’
So the more you see the word Fintech cropping up on your newsfeeds, you can be sure, the more headaches old-fashioned bank managers are getting.
The Term Includes Sectors You Probably Didn’t Think Were Fintech
Put simply, Fintech companies unbundle all the different types of financial transactions that banks traditionally do. And as each Fintech tends to specialize in just one area, they focus on doing it in a way that’s as efficient, as streamlined and as user-friendly as possible — on a digital interface. And at a low cost to the customer.
That includes platforms that are fairly obviously Fintech. Like platforms that let you make payments online or in stores — Square or Paypal. Platforms that let you trade stocks — eToro or Robinhood. And anything digital you use to apply for a loan.
The Fintech label also includes Cryptocurrencies, and the crypto trading platform, Coinbase. And the so-called neo-banks, like Chime, Transferwise, or Revolut..
But there are other players you might already be familiar with, but hadn’t thought of as Fintech.
Crowdfunding is considered Fintech too – so it includes the likes of Kickstarter and GoFundMe. And if you make or receive payments via Patreon, you’re also using Fintech. Or if you’ve raised money, or donated money via online charity fundraising platforms — that’s Fintech too.
And there’s Fintech specifically for Medicare. One example is Oscar — an American health insurance company that uses IT to shake up the healthcare system, making it easier and more transparent to make medical claims, all at a reasonable cost.
It’s Lifted Millions of People Out of Extreme Poverty
One thing that Fintech does a great job of, is bringing financial services to people who couldn’t access them before. Often that means people who didn’t have a regular income, or a permanent address. And Fintech’s allowing them to build wealth and escape the poverty trap.
A case in point is M-Pesa. It was released in Kenya in 2007, and basically transforms your smartphone into a bank account. It allows users to make and receive payments, make deposits online, all in a secure way. And it gets credit for having reduced crime in a society that used to be mostly cash-based, and prone to theft.
In fact, since M-Pesa was launched in 2007, it’s raised 2% of Kenyans — around 200 000 households — out of poverty. As well as many others in other countries in Africa where it’s also used.
And we think that all of that means Fintech deserves some serious kudos.
It’s Revolutionising the Loans Market
Looking and applying for a loan is a great example of how traditional banks were drowning in bureaucracy. And how Fintech has shown us all that it can be improved and streamlined and for a lower cost.
Now, it’s possible to find a whole range of apps and websites that let you compare prices of credit card loans. In a way that banks didn’t use to do. That includes peer-to-peer lending platforms like Prosper, Marketplace and Lending Club. Sites for business loans, like Kabbage and Lendio. And Fintechs that let you apply for mortgages, which take traditional brokers out of the equation, and approve loans faster.
And in 2016, American Fintech SoFi, which helps with student loan refinancing, became the first online lender to get AAA credit rating.
They Could Make Traditional Credit Ratings Obsolete
Anybody who’s ever taken out a loan knows how credit rating is the holy grail when it comes to being able to access money. A bad credit rating shuts off all kinds of opportunities — and is difficult to shake off. This is something else that Fintech has been busy disrupting.
That’s thanks to Fintech lenders like Affirm, which offers loans to people with bad or no credit ratings, and also helps them build up their credit rating. Or Upstart, which uses totally different data that usual, like employment history, to determine how credit-worthy you are.
And it all means that soon, we could be seeing the end of credit ratings as we know them.
Cybersecurity Is Still a Big Concern
Of course, it comes with the nature of FinTech companies that they hold huge amounts of sensitive data. And there are high risks if it gets stolen. And along with all the good news around Fintech, it’s worth noting that it’s not all rosy — and we do need to be careful.
Figures from last year show that 27% of Fintech companies have experienced a security incident, and 29% aren’t sure, because they haven’t checked. With more investment, and more transactions being made through FinTech, this is likely to improve in the future.
But it still goes to show just how seriously we should be taking cyber-security. And while we’re on the topic, we’re going to take the opportunity to strongly recommend that you have a VPN. Just one click makes your digital footprint anonymous. It keeps prying eyes away from your online activity, and transactions are more secure. That’s as well as other perks, like letting you access sites and content that wouldn’t usually be available in your region.
Here at Alux, we use NordVPN. And right now they have an amazing offer, specially for our community. Just go to alux.com/vpn — you can get two years-worth of VPN services for only 89 dollars. That’s a 68% discount.
Aluxers, make sure you have yourself covered when it comes to online security. And make the smart choice.
Investment in Fintech Is Going up Exponentially
With so many movers and shakers of the last decade being Fintech, this one shouldn’t come as that much of a surprise. Over $300 billion has been invested in Fintech in the past decade. And according to Goldman Sachs, the market worth off all FinTech firms is $4.7 trillion.
That includes investments made by big tech firms into their own platforms. Like ApplePay and Google Wallet. As well as the financing that’s been secured by a large number of start-ups — around 12 000 Fintech startups across the world.
The Word Fintech Originally Described the Back-End Technologies of Traditional Banks
The first time most of us heard the word Fintech was probably sometime in the last decade. But the first recorded use of it goes back a lot further, to 1971. It was originally used to describe the back-end technology used by banks and big financial institutions. Kind of ironic, seeing as we now use it to talk about their competition.
And the first Fintech that really went global was a company is a name we all know well — PayPal, launched in 1998, by one of our favorite people here at Alux, Elon Musk. Although it wasn’t until quite a bit later that the term Fintech started to be used widely.
It’s a Huge User of Machine Learning
As Fintech offers cutting edge products, it stands to reason that they use the most cutting edge new technologies — and are some of the biggest users of them. And none more so than Machine learning and AI.
One of Fintech’s most famous uses of AI is in so-called Robo-Advisors. They might sound like armor-clad law enforcement agents from a dystopian future. But the word actually refers to algorithms that automate investment advice. And basically, they do the same job as financial advisors, but at a lower cost.
And another way Fintech companies use AI is in their cybersecurity the use to fight online fraud. They do this with computer programs that use information about your payment history to flag up transactions that are outside the norm.
…and Other New Technologies Too
Yep, Fintech uses all kinds of new technologies. Like chatbots — which assist customers with basic tasks and cut down on staffing costs.
Or an area called predictive behaviour analytics, used in car insurance apps like Root Insurance. Basically, the app tracks drivers’ movements and assesses their driving skills. And adjusts the premium rates based on their performance behind the wheel.
And of course, blockchain, which was developed specifically to record transactions of Bitcoin, and is closely connected with one of the most talked about areas of FinTech, Crypto.
They Can Improve Your Spending Decisions
In case you’re one of those people who finds it difficult to make the right decisions when it comes to money, we’ve got good news for you. And it could be FinTech that saves the day.
That’s because one area of FinTech that’s been getting lots of users is personal finance apps. With apps like Mint and Money Dashboard and Credit Karma you can use budgeting functions to help you spend less, and hit your savings goals. And some apps use gamification to add some fun into saving — not usually known as the most fun activity to do, as practical as it may be.
And a lot of research shows that they actually work. And help people save more money, and feel more satisfied about their spending decisions.
Do you think your spending decisions are frivolous? You gotta check out these “Unusual Celebrity Spending Habits.”
The World’s Biggest Fintech Is a Subsidiary of Alibaba
For those of you who don’t spend a lot of time in China, it may not be that familiar a name to you. But at the moment, the world’s biggest Fintech company is Chinese Ant Group — valued at $60 billion, and with over 10 000 employees. And it owns several major financial services, like AliPay, the largest online payment platform, Yu’E Bao, the world’s third largest market fund, and a credit rating system, Sesame Credit.
And if you’ve been paying attention, when you heard that one of its services is called AliPay, it probably didn’t take you long to figure out that it’s part of the Alibaba group. Which means that along with Apple Pay, Google Wallet, and Jack Dorsey’s Square, they’re one of several FinTech companies that have a regular tech company behind them.
Asia Is the Biggest Consumer of Fintechs
That’s not just in terms of the number of people using them — also by percentage of the population. According to an Ernst and Young survey, China and India have the biggest Fintech usage, both with 87% of people asked regularly using Fintech. South Africa was in the third spot, with an adoption rate of 82%.
…but the USA Is the Biggest Producer
It won’t come as much of a surprise that Silicon Valley has the highest concentration of Fintechs based there. But there may be a few surprises in the list of the world’s top 10 Fintechs. Especially if you weren’t expecting to see any Baltic countries make the top ten. Two of them do — Lithuania in fourth place, and Estonia in at number ten place.
After North America, Asia is the second biggest home of Fintechs, with Singapore taking third place globally.
Fintech Is Known for Its Relaxed Work Ethic
Traditional banks have always been seen as stuffy and old-fashioned places to work. Not exactly the kind of workplace you can roll up to in jeans and a T-shirt.
But in their relentless quest to modernize the world of finance, Fintech has gone in the opposite direction. Fintech workplaces are known for their casual dress code, as well as perks like staff happy hours and in-office yoga classes.
And that’s something that’s posing a threat to traditional banks, as Fintechs are finding more and more ways to bag the top talent in finance.
What other changes in the way we use money do you think Fintech will bring us in the future?