If you’ve ever paid for something with yourphone, transferred money using an app or checked your bankstatement online, then you’re already part ofa multi-billion dollar industry. It’s called fintech, and it’s changingeconomies around the world. Fintech is short for financial technology- seems simple, right? Well, the term fintech includes a huge rangeof products, technologies, and business models that are changing thefinancial services industry.
It refers to everythingfrom cashless payments, to crowdfunding platforms, torobo-advisors, to virtual currencies. So every time you donate to someone’sKickstarter campaign – that’s fintech. Or if you transfer money to someoneusing 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 bychanging the way we pay and borrow money.
And investors are buying it. Global investment in the fintech sector hasadded up to nearly $100 billion since 2010. In 2017 alone, fintechinvestment surged 18%. Startups focusing on payment and lendingtechnologies received the majority of those funds. It’s not just startups thatare getting into fintech. Some of the world’s biggest companies fromApple to Alibaba are going big on it, too. Just think of Apple Pay or Alipay. One reason for allof this investment? Consumers are adopting fintech – fast. One out of every three peopleacross 20 major economies report using at least two fintechservices in the last six months China and India are leading the waywith more than half of consumers using services like money transfers,financial planning, borrowing and insurance.
Financial technology has filled avoid for people around the world who don’t have access totraditional banking services. In fact, it’s estimated nearly two billionpeople worldwide are without bank accounts. Now, thanks to fintech, all you need is yourphone to take out a loan or insurance. Take Kenya, which pioneered a mobilebanking system called M-Pesa. Kenyans access their M-Pesa accountsdirectly on their mobile phones to transfer money, paybills or take out loans.
Today, an estimated 96% ofhouseholds 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 traditionallenders, insurers and asset managers to embrace newdigital technologies. For example, wealth managers nowhave to compete with robo-advisors – which are automatedfinancial planning services. I mean talk about riseof the robots, right? Thanks to high-tech algorithms,these services are available 24/7 and can be more affordablethan traditional asset managers. That helps explain why robo-advisors alreadyhave billions of dollars under management.
Like any growing industry,fintech isn’t without risks. And some regulators have struggled tokeep up with the fast pace of innovation. Think of peer-to-peer lending platforms, where individuals borrow and lendwithout going through a bank. Compared to traditional banks, theseservices might not be required to set aside as much money in casecustomers default on their loans. This can be risky forcompanies 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 likelyto grow as more and more businesses go digital. But for many of the companies and consumershere – fintech is more than a buzzword.
It’s a big business opportunity. Hey everyone, Elizabeth here.Thanks so much for tuning in. Be sure to check out moreof our videos over here including one about blockchain and anotherwhere I talk to a company that’s going cashless. Let us know if you have any other ideasfor videos in the comments section and while you’re there,subscribe to our channel. See you later!