Payments have always been at the center of any business. After all, business revolves around them – traders pay their suppliers and expect to be paid by their clients, service providers expect to be paid for the services provided, and all of them need to pay their employees one way or another. The methods through which payments can be made today are very diverse, ranging from the e-wallet services millions of people use online to transfer money and top up their accounts in the Betway app and others to more “traditional” means of payments, like wire transfers, credit cards, and cash. For years, payments have revolved almost exclusively around banks – in the last decade, though, something new emerged. It is usually referred to as “FinTech” and it is set to revolutionize the way we interact with money in the digital age.
What is “FinTech”?
FinTech is short for “financial technology”. The term describes a collection of new, innovative, often disruptive technologies meant to compete and – perhaps one day – replace traditional financial services. The term covers everything between smartphone banking, virtual credit cards, investing services, insurance, and such and various financial advice and products making use of automation, machine learning, and data-driven marketing. And fintech startups disrupt not only by offering innovative alternatives to traditional services but often cheaper ones to the end-user – like the online banking service Revolut that doesn’t charge the user for opening a bank account and for withdrawing up to 200 euros from ATMs a month, Robinhood that offers its users a commission-free alternative to investing in stocks, options, even cryptocurrencies or peer-to-peer lending services like Lending Club, offering personal loans with lower rates than traditional banks.
A quick ascension
In the last decade, the number of fintech startups has multiplied – and so did the number of fintech unicorns (startups valued at $1 billion), reaching 27 this year (with 12 of them in the USA and 9 in China). From just $980 million invested in fintech in 2008, the amount venture capitalists pumped into various financial technologies has grown to $31 billion last year and it’s expected to continue to grow further in the coming years. And fintech is an increasing “threat” to traditional banks and financial service providers because it is customer-focused, quick, adaptable, and innovative where banks are usually profit-oriented slow-movers, caught in the web of their own policies and traditions, and slow to change.
Fintech is expected to gain a lot of traction mostly because of its reduced costs for the end user. The above-mentioned Revolut, for example, has three tiers of services – the most expensive costs GBP 12.99 (around $17) a month and includes a series of services individuals and companies would normally pay a lot more for, ranging from medical insurance to cashbacks on the users’ purchases.