The word “Fintech” is a contraction of “finance” and “technology.” A new financial technology innovation to improve economic activities. It is also called financial technology. What do we need to understand by the notion of fintech? Where does it come from? What are its characteristics and principles? And what are the different categories?
By extension, the term “Fintech” refers to a company, a startup that works in this field. It refers to an innovative start-up that uses technology to rethink financial and banking services, startups that reinvent finance using technology. In other words, Fintech includes all companies that use creative and disruptive operational, technological, or economic models that aim to address existing or emerging issues in the financial services sector.
Characteristics and principles of Financial Technology Innovation
Fintechs are generally startups that are well versed in information and communication technologies. Companies are trying to capture the market shares of large incumbents, which are often not very innovative or lagging in the adoption of new technologies. Their main goal is to make finance more straightforward and accessible by offering better quality and less expensive services. FinTechs are developing in all areas, from savings management to individuals’ loans through business financing or online payment. Indeed, being companies in finance, they are subject to special regulations. This regulated market imposes strong but necessary constraints for consumer protection
Where does Fintech Financial Technology Innovation come from?
Following the economic crisis of 2008, many bankers and traders left the major financial centers of the planet and embarked on entrepreneurial adventures to rethink the finance model through technological innovation.
In the 2010s, we witnessed a full expansion of this sector. Because new disruptive models were competing with traditional banks and insurers, for example, lending between individuals and payment systems (mobile payment, verification of financial transactions …), currency exchanges, and home insurance.
According to the National Center for Digital Research, the term “Fintech” has begun to use technology applications in space. Long before being extended to the more common consumers. Today, “Fintech” companies are shaking up the market leaders in place by offering, for example, dematerialized services.
Fintech Financial Technology Innovation categories or the Fintech family
Crowdfunding is part of the big fintech family. It is via a crowdfunding platform for individuals to finance business projects or artistic creation. This financing can be in the form of a grant (with or without a material counterpart), participation in the company’s funds, or a loan to SMEs. This form of financing is called crowdlending. Crowdlending is also “P2P lending” (loans from individuals to individuals). It allows individuals to apply for consumer loans or lend money without going through the traditional channel of banks.
Financial Technology Innovation in Mobile applications and banking platforms
They are part of the second fintech group. Banking platforms make it possible to manage its banking activities. Whether it is the control of its expenses or its investment choices. For example, eToro, the social trading network, allows users to track and copy other network members.
Financial Technology Innovation in Virtual currencies
Virtual currencies are part of the 3rd family of fintech. The most well-known virtual currency is the Bitcoin system. Monetary exchange systems have also been developed on Facebook, Facebook Credits, and the virtual game Second Life, Linden Dollars.
Financial Technology Innovation in Electronic payment
Last category of fintech: electronic payment via your smartphone and on the Internet, at merchants, or on e-commerce platforms. This is particularly the case of a system such as PayPal, the most famous, Wizall or Sikka money (also located in Ivory Coast) which allows you to pay for your purchases or receive money securely, without transmitting your bank details. There are also fintech in insurance (Insurtech), banking (Regtech), and many other sectors of activity. But it is business lending and payment that remain the dominant trends.
As a reminder, the Fintech sector is booming in Africa, precisely in Ivory Coast. Programs are being set up for the development of this sector. In particular, the BRVM fINTECH program aims to select talent who initiate Fintech projects and who will benefit from support in implementing their projects in its “BRVM Fintech Lab” laboratory. As well as the Africa Fintech Forum, one of the most significant unmissable events in digital finance in Africa. The 3rd edition will be next November.
Four categories of fintech Financial Technology Innovation users
Fintech describes a wide range of technological interventions in personal and business finance. We identify four families of users:
- B to B (business to business) for banks among themselves
- B to B for customers of these banks
- B to C (business to customers) for small business owners
- B to C for consumers
Reduced costs thanks to fintech The Financial Technology Innovation
For startups themselves
Fintech startups are developing financial inclusion and using technological innovations to reduce operational costs and be more efficient. In this way, they can reduce the costs associated with each transaction.
For the consumer
In addition to greater fluidity in their services, they have a lower and more advantageous purchase price. Traditional banks and insurance companies are threatened, but it is also an emulation for the entire financial sector.
Indeed, all banks are developing their associated services such as mobile bank account management apps and thus making online finance much simpler overall.
Ways Big Data in FinTech Can Revolutionize Financial Technology Innovation
The Financial Technology Innovation sector has become one of the biggest consumers of big data. The arrival of Big Data has modified the financial world.
Better actuarial decisions
With Big Data and predictive analytics, the industry has become much more consolidated and competitive. This has allowed FinTech to take on the large tight banks. Predictive analytics is one of the main advantages that Big Data offers to FinTech companies. Thanks to predictive analytics, brands can now set more precise borrowing terms, which is financially advantageous for low-risk clients. It also reduces the risk of dealing with unnecessary risky borrowers without setting appropriate conditions.
Value for customers
Big Data has now become a must to offer better value to customers. The financial sector is no exception.
Many customers have often expressed concerns about companies’ access to their data. However, these companies only use data to serve it better. In a report from Accenture, it was reported that customers were willing to let companies use their data if it helped them while they searched for loans.
In a cash-strapped economy, financing can be an issue. Big Data is not only important for delivering value to customers. It is also a handy tool for Financial Tech companies to grow.
Fintech organizations need significant capital as they expand. And they have faced many challenges over the years. After the 2008 financial crisis, many institutions were reluctant to offer financial assistance to startups to develop their operations. Companies need to provide reliable business plans to acquire the capital they need. Big data analytics gives small lenders an excellent opportunity to show their skills to investors. This, in turn, has helped many brands secure funds that would not otherwise have been available.
To conclude, Fintech can revolutionize the banking sector and bring immense changes to traditional banking. Now that you know what Fintech is and how it works read our next blog to learn about designing apps for fintech. Since there is not much spending on inventory, fintech has many economic advantages over the traditional financial sector. Therefore, it’s a wise choice to invest in fintech startups now. In addition, for any fintech industry to thrive, it is necessary to promote and market the brand in the right light.