If you’ve ever paid for something with your phone, transferred money using an app or checked your bank statement online, then you’re already part of a multi-billion dollar industry. It’s called fintech, and it’s changing economies around the world. Fintech is short for financial technology - seems simple, right?
Well, the term fintech includes a
huge range of products, technologies, and business models that are changing the
financial services industry. It refers to everything from cashless payments, to
crowdfunding platforms, to robo-advisors, to virtual currencies. So every time
you donate to someone’s Kickstarter campaign - that’s fintech.
Or if you transfer money to someone
using Venmo - that’s also fintech. And that’s just the beginning. Here at a
major fintech conference in Amsterdam, hundreds of companies are trying to
disrupt the banking and finance industries by changing the way we pay and
borrow money. And investors are buying it.
Global investment in the fintech
sector has added up to nearly $100 billion since 2010. In 2017 alone, fintech
investment surged 18%. Startups focusing on payment and lending technologies
received the majority of those funds. It’s not just startups that are getting
into fintech. Some of the world’s biggest companies from Apple to Alibaba are
going big on it, too.
Just think of Apple Pay or Alipay.
One reason for all of this investment? Consumers are adopting fintech - fast.
One out of every three people across 20 major economies report using at least
two fintech services in the last six months China and India are leading the way
with more than half of consumers using services like money transfers, financial
planning, borrowing and insurance.
Financial technology has filled a
void for people around the world who don’t have access to traditional banking
services. In fact, it’s estimated nearly two billion people worldwide are
without bank accounts. Now, thanks to fintech, all you need is your phone to
take out a loan or insurance. Take Kenya, which pioneered a mobile banking
system called M-Pesa.
Kenyans access their M-Pesa accounts directly on their mobile phones to
transfer money, pay bills or take out loans. Today, an estimated 96% of
households in Kenya use M-Pesa and one study found it has helped lift roughly
2% of Kenyan households out of extreme poverty. The rise of fintech has forced
traditional lenders, insurers and asset managers to embrace new digital
technologies.
For example, wealth managers now
have to compete with robo-advisors - which are automated financial planning
services. I mean talk about rise of the robots, right? Thanks to high-tech
algorithms, these services are available 24/7 and can be more affordable than
traditional asset managers. That helps explain why robo-advisors already have
billions of dollars under management.
Like any growing industry, fintech
isn’t without risks. And some regulators have struggled to keep up with the
fast pace of innovation. Think of peer-to-peer lending platforms, where
individuals borrow and lend without going through a bank. Compared to
traditional banks, these services
might not be required to set aside as much money in case customers default on
their loans.
This can be risky for companies and consumers. Data privacy is another major concern. As more financial services go digital, cyber attacks become a bigger risk. The challenges facing financial technology are likely to grow as more and more businesses go digital. But for many of the companies and consumers here - fintech is more than a buzzword.
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