Author: bsipiora

The fintech discussion in developed countries like America and nations throughout Europe are focused on how to reboot the antiquated banking system.  These economies have layers of new technological upgrades and recovery plans coming out every year since the 1960’s.  The fintech in these economies is approached in three ways:

1. Broaden the financial offer to those who have been underserved or unserved in these markets.
2. Remove the inefficiencies inside banks, such as the cost overheads of the client on-boarding processes.
3. Remove the friction in the customer journey by making things far easier.

However, the focus always comes back to the incumbent’s existing way of doing things. This results into simply improving existing technology.

Fintech in China and India is demonstrating characteristics of growth economies.  These nations are starting their fintech journey without much there in terms of existing platforms.  The growth economies unencumbered vision allow them to go global without shackles.  I believe the emerging markets will continue to be where the most fintech companies come out.

https://thenextweb.com/business/2017/03/20/global-economies-upside-three-worlds-fintech/#.tnw_yzEc3It9

 

China is on track to beat its $10 billion funding it raised in 2016 for Fintech. A Bloomberg report said the investment areas focused on will most likely include big data, artificial intelligence, blockchain, and cybersecurity.  The managing director of China financial services at Accenture, Albert Chan, expects more money to go into investment services, online lending, and robo advisors.

CBInsights came out with a report stating that deals accounting for around 43 percent of the global funding taking place in Asia in 2016. A couple major Chinese companies have been pouring money into the Asian financial technology sector.   JD.com raised $1 billion in January of 2016.  Multimillion-dollar Chinese investment firm Huiyin Group announced the launch of a 420 million blockchain and bitcoin fund.

Albert Chan expects the venture capital funding to continue.  He says, “this year we are likely to see continued significant investment into fintech in China both from new market entrants and traditional financial institutions.”

China will continue to be a leading market for Fintech due to its hot market and economic growth.

https://www.cryptocoinsnews.com/china-set-exceed-previous-fintech-investment-record/

 

 

 

A spokesperson from Morningstar described it as follows: “Fintech companies are businesses that leverage new technology to create new and better financial services for both consumers and business. It includes companies of all kinds that may operate in personal financial management, insurance, payment, asset management, etc.”

Fintech is a result of the demographic shift in population where people are looking for easy access, efficiency, convenience, and speed.  In this day in age, people want to be able to do everything on their mobile devices in a matter of seconds.

Fintech companies are disrupting the traditional business models with innovative ideas.  The integration of finance and technology helps employees effectively manage their financial lives when and where they like.

Fintech can help cut costs for companies in the retirement and financial wellness space and improve benefit plan effectiveness. Ultimately, Fintech makes life easier for both the employer and its employees and individuals.

http://www.huffingtonpost.com/entry/what-is-fintech_us_58a20d80e4b0cd37efcfebaa

 

There is a fundamental strategic contradiction between technology and finance.

Some investors point out that the financial industry is two industries move at different paces.  Rohit Arora believes that Fintech is going to be around for a long time.  He argues that large banks are investing in technology to allow for digital loan applications, which demonstrates that fintech is becoming more mainstream.

Market realities encourage short-term thinking.

Arora argues against the connotation that the grow at all costs mentality of fintech firms will kill it.   The nature of capitalism is that innovators enter the marketplace and others follow.  The well run companies will survive while others will die.  The fintech industry is similar to other industries the nature of survival.

Incumbents in the market are powerful and resistant to change.

Big banks have no choice but to change the way they do business.  The marketplace demands it through the use of smartphones and going online for everything one needs.  Large banks are and will continue to invest in fintech companies.

 

With everything moving online and mobile, their is a high demand to enable online applications for small business loans.  Fintech is not going anywhere.

https://www.forbes.com/sites/rohitarora/2017/02/22/3-reasons-fintech-is-thriving/2/#6af355d3552d

 

Recent data form KPMG has shown that the total amount invested and number of deals in America fintech companies has dropped significantly whereas in Asia there is continual growth in fintech investments.  The third quarter of 2016 was the second time this year where North America fintech companies attracted less venture capital funding than Asian firms.  A big reason for the the American fintech hubs ranking very low in terms of “policy” is because they are subject to regulation at the state level.  Investors are worried about the persistent confusion regarding the regulations and the uncertainty that is evolving with them.   Some of the speculation is around the question of whether the Fintech firms should be regulated as financial companies or IT service platforms. With the new administration in office, there is a lot of speculation about the administration’s economic plans, which is likely to slow investment in the sector. I believe the lack of clarity with regard to Fintech regulation among both the State and Federal Government will have some negative effects on the growth of Fintech.  With that being said, I think the importance of Fintech will continue to make it a growing market in the U.S.

 

US regulatory environment threatens the rise of fintech

1.  There is a fundamental strategic contradiction between finance and tech.                                                                                                                                                                    Tech is a high paced sector whereas finance is historically a slow moving sector.  Investors who are funding Fintech companies are expecting to realize returns within 3 to five years.  This puts pressure on the companies to think short-term.
2.  Market realities encourage short-term thinking.                                                                                                                                                                                                                    The mentality of the industry has become to grow at all costs and companies are using investment dollars for quick growth rather than innovation. The increase in competition is forcing companies to make riskier and riskier decisions.  For an online lending company this means less desirable loans.
3.  Incumbents in the market are powerful and resistant to change.                                                                                                                                                                                     Incumbents in the Financial industry do not like change.  On top of that, working with the incumbents of the industry means engaging in deals that develop slowly just like the industry.

 

I believe that the Fintech industry is not failing and will continue to grow.  As technology begins to grow, industries are beginning to become more and more interconnected.  Investments in Fintech have jumped from $3 billion to $40 billion in the last couple of years and will continue to grow.

http://www.forbes.com/sites/chrismyers/2017/02/07/3-reasons-why-fintech-is-failing/#65978c477b6b

 

 

 

 

Grab is a Singapore based ride-hailing platform that holds a large presence in Southeast Asian countries such as Vietnam, the Philippines, Malaysia, Thailand, Singapore, and Indonesia.  Grab is planning a $700 million investment in Fintech companies in Indonesia, which is already their largest market.  With only 75 of the 250 million people in Indonesia having banking Fintech is a great avenue to provide access to a part of the population that hasn’t had the ability to use Grab’s services.

Grab co-founder and CEO Anthony Tan states it well, “We see this huge, unbanked population becoming bankable. If we can… give access to those who don’t have access to credit, it’s a massive opportunity.”

Fintech transactions are expected to grow at an annual rate of 20% in Indonesia. In addition to the rise in Fintech startups in the country, there is a significant rate of smartphone use.  This investment makes it evident of how important Fintech is, especially in emerging and developing markets.  It is easier for people to buy a cheap smartphone than get bank credit.  I see this investment having a high rate of return for Grab.

https://www.cryptocoinsnews.com/uber-competitor-grab-700-million-fintech-indonesia/

 

The growing market for financial technologies is greatly improving efficiencies for institutions.  Mark Carney, governor of the Bank of England and chair of the Financial Stability Board, notes that new entrants such as peer-to-peer lenders, payment service providers, and innovative trading platforms are bringing  new technologies to reinforce economies of scale.  Carney discusses the risks that come with new underwriting models causing a change to credit quality and macroeconomic dynamics.  Fintech is able to capture new types of data.  For example, as customers rely more and more on machines, they are able to gain the best rates possible.  The new technologies are used to improve credit underwriting, create better matches between products and customers, and grow peer-to-peer lending.  Of course with the increase in technology comes an increase in privacy issues and the handling of customer information.

https://www.cryptocoinsnews.com/bank-of-england-governor-fintech-brings-great-promise-and-risks/