How Fintech is Changing Our Lives
Completely familiar things are often hidden behind new or incomprehensible terms. Fintech has been talked about for many years, and for the last seven years it has become a “trend,” but it appeared long before that.
In fact, these are new technologies for the financial markets: it is obvious that they were there before, they just didn’t come up with a buzzword for them.
In this article, we tell you in simple language what fintech is and what it threatens.
Our vision about the future internet is here.
What is fintech?
The term is a mash-up of two words: finance and technology. From a practical point of view, this means providing financial services with the help of new technologies. It can be banking services, insurance, investing, stock trading and anything else — the important thing is that the bank may not be in this chain.
The internet can be attributed to physical technology (by itself, if appropriate services are available): if you can open an account or get a payment card without leaving home, for example. This also includes internet payments for goods and services bypassing the bank (for example, from an electronic wallet).
Do you have an application installed on your smartphone that analyzes spending and helps to control income and expenses? It’s the same function that might have been done in a notebook or on scraps of paper in the past, but now it’s fintech.
Did you know that Utopia P2P released its beta-version for Android? Read more here.
What is the difference between fintech and banks?
One of the features of fintech is focusing on a specific product, rather than a wide range of them. The players in this market are also more focused in terms of customer acquisition tasks. But in both cases, the issue is not that they are doing something fundamentally new, but how they are doing it.
“Classic banks work differently. They act in “broad strokes” for different products and segments, work with an existing database. Maybe that’s why in some cases they solve problems less efficiently, but at the same time on a larger scale than in fintech.”
Therefore, there is probably no question of competition between banks and fintech. If a bank or a financial company understands that its ability to attract new customers may be insufficient, a partnership with fintech will strengthen its presence in the market. In fintech, in turn, growth is as limited as opportunities — everything is fair.
Another key feature of fintech in its modern sense is the possibility of obtaining access to financial instruments for those who are “not entitled to them.” This aspect can be roughly divided into levels: the simplest is a payment button on websites without “connecting” the seller to the bank; more complicated options are a “cloud checkout” or a multilevel subscription system for a streaming service, for example.
Someone goes even further, so megastructures like WeChat appear. Imagine a PayPal payment system that would start as a chat for mobile devices.
Do you use PayPal? Learn more about it here.
WeChat, Revolut, and others. How did they start and where did they come from?
Product companies (the same fintech) differ in that they have more room to maneuver, they can put forward and test hypotheses faster. Therefore, more than half of startups change their direction after some time of operation — it turns out that the path they started from leads to a dead end.
For example, YouTube, which was conceived as a dating platform, and video chat, and then suddenly became the world’s largest video hosting, forgetting about its “roots.” It was a long time ago, now the trends have accelerated.
“This is the key difference between modern and “classic” companies: they introduce new tools that allow them to be faster and more flexible. Due to this, they win. This does not mean that they know more, they just test more.”
WeChat started as a regular messenger for desktops, a kind of ICQ analogue, then the owner company entered the era of smartphones, quickly adapting to new realities. The Chinese government got involved, which saw a huge potential in e-commerce: why do something from scratch if you can invest in existing technology and a huge user base?
Therefore, since 2013, the platform has begun to turn into a financial harvester, allowing for almost any financial transactions, from purchases to P2P transfers. At the same time, WeChat has not become a bank — there is no need while retaining the “old” functions of the social network.
Of course, some focused on fintech from the very beginning: that is, they were a product company with a specific solution right from the business plan. For example, the Revolut project, which started in 2015. The main product then became a multi-currency payment card with the ability to convert funds if necessary. A few years later, the idea was picked up by others — and it became more difficult to compete.
But even in this format, the British startup still decided to get a banking license — as it rested on the ceiling of possibilities.
The comparison of the messengers is here.
Technologies are tools for solving problems
For a company to work effectively, it is necessary to attract either a lot of customers — to expand the “funnel” — or to reduce costs. At all stages, modern tools are needed.
A simple example is “scoring a client,” conducting verification and risk assessment based not only on a questionnaire but collecting and processing all available information in automatic mode, as we discussed earlier. That is, fast data processing of many clients, and this applies to all areas, not only finance.
Big data, neural networks, and other manifestations of modern technologies with their blockchains and smart contracts are often associated with the concept of fintech. They are available to everyone. Analysis of road traffic, passenger traffic on public transport, morbidity in certain regions and the spread of viruses, behavioral data of buyers, and so on ad infinitum — all this can be obtained from big data. Then templates and forecasting models can be created using neural networks and machine learning, and electronic signatures can confirm the authenticity of data.
Decades earlier, all this information was also available and was analyzed — just much, much slower.
Insurtech involves installing telematics equipment, collecting data from sensors (how fast the driver drives, what driving style he has, whether he violates the rules, and so on), then building a behavior model. Then, based on the data, the chance of an insured event and, accordingly, the amount of payments are calculated: if you drive carefully and little, you pay less; if you are reckless, you pay more.
On the one hand, Insurtech is still the same data analysis and narrow specialization; but on the other hand, it is the emergence of a new layer in the form of technology.
Blockchain is everywhere: PR or is it really needed?
The technology itself with the signing of contracts using blockchain in terms of building verification processes is an interesting story that did not exist before — unlike big data, which was previously called CRM.
Smart contracts still affect the processes, but the scope of application is niche and therefore has not received wide distribution — for example, touchstones with government contracts, bank guarantees, insurance, and the like.
Big data, neural networks, artificial intelligence — all this will be applied and developed, very convenient tools for collecting and processing information, building models and forecasts — all this accelerates business processes.
The same applies to the OpenAPI ecosystem, which allows you to integrate various products (services) with marketplaces, build “bridges” between banks and fintech, change sources (partners), test hypotheses, and drive the development of open banking (“open banking” is the exchange of customers’ data with their permission in the financial sphere).
Blockchain has already occupied its niche, and it is connected not with the banking sector, but with payment systems. At the same time, it is difficult to assess how popular the phenomenon is.
Behavioral digital marketing and customer profiling for each specific micro-segment will continue to develop.
And fintech will continue to experiment and test new hypotheses.
More about the digital era and its threats are here.