Tag: financial technology

Fintech Around the World

On September 21, 2017

Fintech, short for financial technology, is a commonplace term in first world economies such as those of the United States and Europe. Even if you don’t work in the finance sector, you are probably familiar with it. It makes its way into the news all the time with hyperbolic speculation about how fintech will be the ultimate disruptor of traditional banking, overturning archaic legacy systems. It’s true that financial technologies have shaken up traditional financial markets to a certain extent, but exactly how much and in what ways varies across the globe.

To get a sense of how much the fintech sector is disrupting markets, we should look at stock investments in the major fintech markets around the world, on both a macro and micro scale. Overall, fintech has taken the world by storm. According to statistics collected from the 2017 FinTech Adoption Index, the average adoption rate of fintech products around the world is 33 percent- up from 15 percent in 2015. Even in emerging markets such as India, Brazil, China, Mexico, and South Africa, the adoption rate is about 50 percent. Fintech funding around the world totaled $49.7 billion between 2010 and 2015, and $25.8 billion in 2016 alone. As of 2016, there were approximately 1,400 fintech companies throughout 54 countries.

In the macrocosm, it is clear that fintech is a dominant and growing force, but to understand its impact on a deeper level, one should examine regional trends. Here is how the fintech sector plays out across European, U.S., and Asian markets, based on recent data from GP Bullhound and CB Insights.

United States

The United States is a hotspot for fintech activity, representing nearly half (46%) of all global fintech startups valued at $1 billion or more (or unicorns, in finance speak). The United States exhibits a fairly consistent trend over recent quarters where the volume of fintech deals being made is decreasing while the amounts are increasing. The reason for this trend can be attributed to a shift toward large-scale private investments, which could affect the supply of venture capital funding to other startups.

Europe

Fintech investments in European markets, in contrast to the purely capitalist United States, tend to be smaller and more regulated. Only one European fintech investment as of the second quarter of 2017 exceeded $50 million in value. Although the volume and value of investments have decreased since the first quarter of the year, investments follow a pattern according to the European financial year, whereby investors seeks to capitalize on early-stage fintech startups before the end of the fiscal year. Additionally, traditional banking models in the UK are starting to give way to technology-driven ones, as can be seen in ClearBank, the first UK clearing bank built on cloud technology rather than legacy systems.

Asia

The Asian fintech market has experienced rapid growth in the second quarter of the 2017 fiscal year, with deal value and volume both experiencing five-quarter highs. The reason for the spike in Asian fintech markets can be explained by huge investments in financial technologies alongside traditional financial institutions. Rather than disrupting traditional institutions, fintech businesses in Asia tend to supplement the existing infrastructure.

It’s easy to make generalizations about fintech and the effect it has on traditional financial markets around the world, but when we take a step back and examine how it plays out across key markets, it becomes apparent that fintech has a long way to go before it becomes the ultimate disrupter of financial markets people speculate. For now, it exists within a highly volatile market where traditional systems such as legacy banks continue to exist alongside fintech startups, many of them gradually morphing their financial offerings.

Jacob Parker Bowles: The Shifting Paradigm Of Venture Capitalists And Fintech

The Shifting Paradigm of Venture Capitalists and Financial Technology

By Jacob Parker-Bowles

On August 2, 2017

In FinTech, Jacob Parker-Bowles

Several years ago, before fintech (financial technology) became a household name and widely accepted form of banking and finance management, venture capital firms specializing in this area did not exist. In recent years, however, fintech has become one of the fastest-growing areas for venture capitalists.

Venture capitalists invest in companies that they believe to have large growth potential, so it is no surprise that so many venture capitalists have chosen to funnel their funding into fintech startups- the industry is worth nearly $900 billion, comprising over 1,000 companies and $105 billion in funding. According to VB Profiles’ Fintech landscape report, outside funding for fintech companies more than doubled between 2014 and 2015, from $17.8 billion to more than $38 billion.

With all that growth in the past few years, it seems that it would have to plateau at some point, and as recent trends suggest, that just may be the case, with financial technology experiencing a paradigm shift. In 2016, global venture capital investment dropped off to $25 billion from $47 billion in 2015.

So what gives? Venture capitalists are not losing faith in startups, but they’ve had a sort of reality check. According the Morgan Stanley, “Pullback in fintech investment over the past year is indicative of a realization of lower return on investments than initially hoped due to some unique challenges to disrupting in the financials industry, and our suspicion is that VC investors will continue to scale back investment.”

As venture capitalists step back, legacy firms step in. A fear of disruption can be attributed to the reason traditional financial firms are now hopping on the fintech bandwagon. The threat of disruption from fintechs is forcing incumbents to up their investments in technology to gain operating efficiencies and preserve market share,” Morgan Stanley explains.The proposed deregulation of Wall Street from the Trump administration is another factor. Deregulation would free up incumbent firms’ spending as they wouldn’t have to put out as much money for regulatory compliance and would have more to invest in fintech startups.

This shift in investment patterns is unlikely to have a direct, adverse effect on fintech startups. What is likely, though, is that established Wall Street firms will gain a competitive edge with fintech companies, putting them on a more level playing field as they adapt new technologies to improve their business models.

5 Top FinTech Companies

By Jacob Parker-Bowles

On June 28, 2017

In FinTech

Fintech is, as its name alludes, a field that combines both finance and technology. The companies that fall under the fintech category often specialize in account management, lending, financing, financial assets and capital markets. However, fintech’s main point of attraction for businesses large and small is its dedication to meeting customers’ needs.

Unsurprisingly, the fintech industry is booming, with at least a dozen new companies reaching unprecedented success shortly after their inception.

With that in mind, let us take a closer look at the top fintech companies around the globe:

Adyen

Founded in 2006, this Netherlands-based company provides its clients with the ability to accept payments from around the globe with a single platform. Since it expanded its software to accept payments from online and mobile orders, Adyen has seen an influx of high-profile clients — namely, Facebook, Netflix, Uber, L’Oreal, Burberry, and Microsoft. Because of this spike in popularity, the company nearly doubled its revenue to $700 million in 2016.

Klarna

Headquartered in Stockholm, Sweden, Klarna is focused on improving the online shopping experience via an optimized checkout system. Since the company got its beginning in 2005, it has served over 45 million end customers and added big names such as Disney, Spotify, and Samsung to its list of clients. At the end of 2016, Klarna was valued at over $42 billion.

Avant

Founded in 2012, Avant is an online lending platform that is dedicated to lowering the barriers consumers face in borrowing money. Although this United-States-based company does not necessarily have any high-profile clients, it has reached over 500,000 customers and accrued a loan portfolio that is worth over $3.5 billion — an impressive feat for such a young company.

Oscar

Founded in 2013, this innovative company has taken the customer service aspects of fintech and applied them to the health insurance industry. Oscar’s goal is to encourage uninsured Americans to purchase policies by quickening the application and approval process, and providing access to full-coverage plans that boast affordable premiums. In addition to its admirable mission statement, Oscar also boasts a prominent list of investors that includes Google Capital, Fidelity, and Khosla Ventures.

SoFi

Launched in 2011 by four Stanford business students, this San Francisco-based fintech startup promises to be “a new kind of finance company.” Clearly, SoFi’s unconventional approach to lending and wealth management has been successful, as the company now boasts over $19 billion in funded loans and over 300,000 members across the country.

How Retailers Are Retaining Relevancy

By Jacob Parker-Bowles

On June 7, 2017

In FinTech, Jacob Parker-Bowles

It’s not hard to spot the decline in brick-and-mortar stores. If you were alive in the 90s, you probably remember lounging with a book and listening to the CDs in Borders, testing out the gadgets in Sharper Image, checking out the flat-screen TVs at H.H. Gregg, picking out your next VHS for movie night at Blockbuster, and trying on sneakers at Sports Authority. None of these stores exist today. Even shopping malls are gradually becoming obsolete, with many closing a vast majority of their retail stores and becoming these cavernous, eerie ghost towns.

As more and more retail stores switch to e-commerce only or become acquired by other retailers, the ones left standing will have to get creative and come up with ways to retain their relevance in a tech-dominated world where 79 percent of U.S. consumers shopping online and 42 percent ranking convenience as an important factor for shopping online versus traveling to a store, according to a study from Pew Research. Online shopping grew at a rate of 12% year-over-year since 2009 compared to 4.5% for retail sales according to the U.S. Census Bureau’s monthly retail report.

When technology is the name of the game, the most logical thing retailers could do is utilize it to appeal to a tech-driven society- and that is exactly what some retailers are starting to do. According to leading technology research and consulting firm, Gartner, “traditional stores will have a place in the future with a new model that will blend the digital with the physical.” Enter, artificial intelligence (AI).

Artificial intelligence is the use of machines to perform tasks that normally require human intelligence. AI has both amazing potential and also some concerning implications- if we continue to outsource human tasks to robots, will we reach a day when there is no longer the need for human labor? Thankfully, that day has not yet arrived, and maybe it never well. AI is just starting to manifest in the form of personal assistants like Amazon Echo and Google Home.

One of the ways brick-and-mortar retailers are competing with online retail is by collecting customer data through video surveillance. Online vendors have always had an advantage over physical retailers in combatting cybercrime in that they store all of their customers’ data. Now, facial recognition technology and floor-level cameras allow retailers to predict the age and gender of customers and even analyze customer reactions to products. Retailers like Walmart and IBM are already implementing this technology.

Another way retailers are employing data and AI to stay on the cutting edge is through in-store help. Target plans to equip all associates with technology that will enable them to deliver superior customer service by searching inventory across the company, setting up shipping, and taking payment from the customer mobly. Lowes is taking it one step further by launching robots to assist customers on the floor, keep track of inventory, and analyze shopping patterns.

A final way retailers can take advantage of AI is by leveraging the internet to obtain key data about customers and make their shopping experience more personalized. By monitoring trends among shoppers, retailers will have a better idea of what to sell and how to attract customers.

Technology ultimately encroaches upon every corner of human life, albeit at a slower place in some parts of the world, and it is the difference between institutions that succeed and those that fail.

Fintech: Startups vs. Big Banks

By Jacob Parker-Bowles

On May 31, 2017

In FinTech, Jacob Parker-Bowles

Fintech is taking control of the future of finance across the world. There are multiple aspects of financial technology that will be shaping the way we handle the exchange of money. Whether it be transactions from smartphone or advancements in accounting, fintech has full control of how we manage finances in the 21st Century.

Adapt or Die

With apps already out like Venmo, large corporations are trying to get ahead in the technological race to adapt fintech. Apple has already begun to get a leg-up on the fintech world by releasing Apple Pay. The accessibility of money has been demanded by consumers and Apple is listening. Big banks are starting to find they may be losing the battle against financial technology if they do not adapt. While this may be bad news for traditional small banks, large financial corporations are beginning to invest in fintech start-ups.

The advantages for big banks to invest in these start-ups are due to their ability to have fast innovation and edge. As well, financial technology allows users to make decisions that are more precise and fast. Why would customers stay at slow financial institutions when they have the ability to utilize resources like one-click loans or secure credit card processing?

A Mutual Relationship

Banks have viewed the growth of financial technological companies as a threat to their business and industry. Yet, there is a great opportunity between large financial corporations and fintech companies trying to gain traction. Large banks need the innovation that these start-ups have and the start-ups need the financial support and tracking that the banks can give them. Partnerships between the industries could prove beneficial for both.

Essentially, it comes down to both parties finding a middle ground to benefit from one another. The heart of fintech comes down to innovation, collaboration, and openness. If banks do not realize this and change their business model, they may end up on the sidelines while small start-ups take their place.

Across The Globe

Countries like Brazil have started to see the effects of banks not collaborating with new fintech businesses. Many large banks such as Itau and Banco Bradesco has slowly been closing their physical banking centers due to the changes in the industry.

India’s banks, which dominate the country’s financial landscape, also have a grim outlook. An online payment company, Paytm, announced a $1.4 billion invest while large banks are struggling to keep up.

Convenience Over Customer Service? How Online Banks Appeal to a Changing Clientele

By Jacob Parker-Bowles

On May 8, 2017

In FinTech, Jacob Parker-Bowles

There is an unfortunate tradeoff with the implementation of new technology: the more advanced technology becomes, the less personalized our world is as a result. When simple jobs can be performed by robots, as many now can, there’s no need to invest the money into human labor. At certain restaurants, people can place their orders via iPads. You can pay your friends back through an app on your phone without having to travel to an ATM to take out cash. You can book an entire vacation from your phone. You can place an order online without the need to talk with a human until your food arrives at your doorstep. Luckily, the need and desire for human interaction in the way we conduct business still exists, so technology has not eclipsed customer service entirely. But it seems that things could be headed in that direction, and banks are one sector where we can already see that trend.

Without that crucial customer service element, what remains to retain customers? As paradoxical as it may sound, banks are attracting new customers by keeping them away. “Banks are finding new growth opportunities through online and mobile channels, proving once more that consumers are increasingly attracted to the convenience and speed of mobile and online solutions,” says letstalkpayments.com.

When so many people, especially the millennial generation, turn to their phones for just about everything, it only makes sense that banks would tap into that lucrative channel, prioritizing convenience over customer service. Bank transactions dropped off by nearly 50 percent between 1992 and 2012, as online and mobile capabilities came into play. In order to retain customers, banks have had to play by new rules to appeal to a changing clientele.

Some banks are combining new technologies with traditional banking elements to appeal to a younger generation. For example, Savings Bank of Danbury in Connecticut just opened a new branch, and they pulled out all the bells and whistles to cater to tech-savvy millennials. Instead of a person, a large screen recounting the bank’s history in an ongoing loop greets customers as they walk through the door. The new branch features lounges with iPads and laptops where customers can interact with bank staff through technology, rather than face-to-face in a traditional teller line.

According to Martin J. Geitz, president of Simsbury Bank, the millennial generation are outgrowing the baby boomer generation, and as such are coming to define the economy. Says Geitz:

We are now embarking on the threshold of the millennial generation driving the economy as so many are entering the workforce and their demands and tastes for products and services will really define what banks offer and other consumer-driven products. The millennial generation grew up with a smartphone in their pocket. They have a different relationship with technology than we do. It’s important that we provide functionality at their fingertips.

Banks are offering a variety of features that allow customers to conduct all of their finance needs remotely, without ever setting foot in a bank. For instance, people can now transfer money to one another through cardless ATMs and checks can be deposited through an app on one’s phone just by taking a picture of it. In fact, there is an entirely new breed of banks that’s risen up in response that is moving away from brick and mortar locations entirely, operating solely online. An example of an online bank is Simple, aptly named for its mission to make the banking process as simple and convenient as possible. The bank gained more than 100,00 customers in its first two years and was promptly snatched up by Spain’s second largest bank, Banco Bilbao Vizcaya Argentaria (BBVA).

For the time being, brick and mortar banks are here to stay. They may not be the grand, pillared buildings of years past, with imposing high ceilings and marble floors, but nonetheless, there is a large fraction of the general populace that doesn’t fully embrace or understand technology, and still desires a certain degree of customer service. Mobile banking technology will continue to expand, but it will need to do so in such a way that combines the service of traditional banks with the convenience of online banking.