You know the biotech, but you may not have heard about fintech: companies using technological innovations in the banking and finance area (such as corporate finance, corporate credit, online payment, portfolio management, online banking, etc.)
Along with the success of crowdfunding after the 2008 economic crisis, fintech companies which offer fully online financial services that complement those of traditional banks, have found themselves in the spotlight.
In 2018, global investment in fintech companies hit $111.8B with 2,196 deals, according to The Pulse of Fintech 2018, the KPMG’s biannual global analysis of investment in fintech.
But what are the different activities of fintech ? How traditional banking interacts with fintech companies?
What is Fintech?
Fintech (a contraction of finance and technology) consists of several types of activities :
- B2C Fintech companies, the most well known of the different types of fintech organizations, include 100% digital "neobanks" that operate without the use of an agency. These banks offer an account and a low-cost payment card (such as Moven, WeBank, or MyBank) and real-time services online.
- B2B fintech companies offer financial services such as online currency transfers (Kantox) to companies, SMEs, or large account holders.
- B2B2C Fintech (business-to-business-to-consumer) companies, like crowdfunding platforms, bring together project leaders, creators, retailers, SMEs, as well as investors, individuals or professionals. Their activities range from crowdlending (SME loans) and crowdequity (capital funding) to crowdfunding in gifts with or without rewards.
- Insurtech companies in the insurance industry provide comparisons of different policies, collaborative insurance and 100% digital health insurance. Asia will experience a substantial growth in investment in Insurtech, coming in part from traditional insurers based in the United States and Europe to develop alternative insurance solutions in Asia.
- Regtech : these companies create technological solutions to meet the regulatory and compliance constraints of banking players, especially in customer knowledge ( "KYC" or “know your customer”). Investments in regtech will accelerate sharply in 2019 due to regulatory developments that will lead to higher compliance costs for financial institutions.
Moven's payment system uses NFC (Near Field Communication) technology in the form of a sticker placed on the user's smartphone. This sticker will allow users to pay for goods and services in the United States where MasterCard is accepted.
Fintech and traditional banking: collaboration more than competition?
Initially seen as competitors for traditional banks, fintech companies have gradually become potential partners. Fintech firms are still young and they need capital. On the other side, traditional banks need a disruptive vision and a technological approach. Another good reason to collaborate is data: Traditional banks possess a huge amount of data, but they have trouble mining it and transforming data into a true asset -an area that fintech companies have expertise in.
Goldman Sachs, Banco Sabadell Group, Societe Generale...What’s the common feature of these major banking players ? They all acquired more than two finTech startups in 2018.
However, acquisition is not the only form of collaboration. Traditional banks can outsource some of their activities to start-ups in finance or change their businesses by taking inspiration from their innovations. Collaboration can also happen through the creation of an in-house financial startup incubator. Both Barclays in New York and London and Crédit Agricole in Paris have adopted this strategy.
Marcus, the Goldmann Sachs’s digital consumer brand bought The New York Fintech start-up ClarityMoney in April 2018.
In this way, fintech can become an opportunity for the banking industry to innovate, disrupt a long-standing model and better meet customer’s needs.
From Fintech to Techfin
Few years ago, Jack Ma, the visionary co-founder and executive chairman of Alibaba Group said: “There are two big opportunities in the future financial industry. One is online banking, where all the financial institutions go online; the other is Internet finance, which is purely led by outsiders”. Jack Ma actually predicted the current concept of techfin: a technology company that delivers financial products as part of a broader offering of services.
Google, Amazon, Facebook and Apple (GAFA) in the U.S. and Baidu, Alibaba and Tencent (BAT) in China can be considered as techfin companies. These companies have data and know how to use it. Moreover, they have a strong customer centric approach and have successfully reduced costs and defined strong business models. The fact that customers already use services from these companies is a strong competitive advantage, offering users a package of services in a same experience. If fintech is unquestionably the present of finance industry, techfin is probably its future.
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