With the recent slowdown in Fintech and venture allocations to Fintech startups the question that is beginning to be asked is “why?”. Aside from systemic factors such as the rapidly changing regulatory environment, the general business model of Fintech firms is starting to come into question.
In a recent article titled, “The trouble with fintech and why now is the time for dlt“, the author probes some of the issues with the Fintech business model and why it isn’t growing at a similar pace to pure technology companies. The answer lies in the nature of the products that the industry offers in the first place. Fintech companies often offer financial products that by nature take a long time to reap a profitable return. In a startup environment, this is a cause for concern as the companies typically have a limited amount of funds to sustain operations before being forced to seek additional capital. Additionally, financial products harvest large returns at scale rather than in smaller niche markets. Venture capitalists have begun to realize this, which has caused the funding pipeline to substantially shrink.
Still Hope Yet?
Although there has been a noticeable slowdown in capital, an area that is still growing within the Fintech community is the concept behind one of its biggest successes, Bitcoin. This technology is called Distributed Ledger Technology or DLT and essentially works by distributing a constantly changing ledger to all parties within a network. This dramatically reduces fraud risk by ensuring there are multiple correct ledgers that are automatically updated with each transaction. One can think of this concept as similar to the distributed computing trend of the cloud.
Looking to the future, we will likely see a disruption to the traditional providers of such services such as Swift and ACH as more and more companies switch over the the automated DLT technology. However, the fear of data integrity and sharing is still on the minds of many companies which may create a slower pace of change than originally anticipated.
Source: http://www.coindesk.com/the-trouble-with-fintech-and-why-now-is-the-time-for-dlt/