FinTech, Cryptocurrency & Electronic Payments OVERVIEW
One of the fastest growing global business sectors in recent years is the financial technology or “FinTech” sector. Innovation by this field has been extremely challenging to traditional financial services giants while at the same time offering exceptional opportunities for new business models and startups that bring much-needed change. Ventura capital has been pouring into FinTech at a tremendous rate.
Looked at in a broad manner, FinTech is now the driving force in financial services, accounts and transactions of all types, including bank accounts, lending, investment accounts/trading, insurance, mortgages, credit cards, and wealth management. Also, a fast growing, vital part of FinTech today comprises online payments and mobile payments, enabling consumers to easily pay for online purchases and to send each other money for business or personal purposes.
Another branch of FinTech is cryptocurrencies such as Bitcoin. An estimate by CoinCapMarket was that global cryptocurrencies (sometimes called “crypto”) had soared to nearly $3 trillion in market value in November 2021. However, this number plummeted to $0.9 trillion by mid-June 2022 during a market rout. That was not the first time that cryptocurrencies had shown extreme instability.
Only a few decades ago, virtually all financial services relationships were managed in person—at banks’ branch offices, insurance agents’ desks and investment company offices. During the 1970s and 1980s, a slowly expanding number of financial products could be reasonably well managed by telephone. During this period, ATMs started to displace bank tellers in large numbers.
The internet era launched very rapid adoption of online banking, investments and insurance. Discount stock brokerages gained so much market share that they forced traditional brokerages to provide more customer-friendly services and lower fees—so much so that today, many stock trades can be executed on a no-commission basis. Companies like Charles Schwab soared old-line firms like Merrill Lynch were forced to adapt.
Insurance became much more competitive and easier to obtain as the internet grew to mass market scale. Consumers could easily compare rates, apply for insurance and make claims online. This was extremely disruptive to the traditional insurance industry, and value-priced companies like Geico boomed.
The convenience and cost-effectiveness brought about by the early foundation of financial technologies (such as the push-button telephone, the ATM and the internet) were extremely important. However, these early applications pale in comparison to the total FinTech revolution that was launched soon after the January 2007 introduction of the iPhone and the smartphone era, followed by the mid-2000s emergence of ubiquitous, remote computer power in the cloud.
Smartphone apps are relatively easy to create and scale thanks to the flexibility of cloud computing platforms such as Microsoft’s Azure and Amazon’s AWS. At the same time, a reasonable estimate would be that well over 6 billion consumers worldwide have access to smartphones. More than 1.5 billion new smartphones are sold yearly. Portability, reasonably good security and cost-effectiveness make smartphones a nearly-ideal platform for financial account management, and the cloud has vastly boosted this trend.
Not surprisingly, emerging/developing nations where the economy is expanding rapidly have been among locales to most readily adopt FinTech innovations. If a shortage of bank branches existed in India, for example, mobile banking solved the problem. If a modern insurance industry was not fully developed in Vietnam or Thailand, online insurance expanded the market. If consumers had few credit cards or checking accounts anywhere in the world, then payment platforms like Paypal solved a major need. The market in Asia is a perfect example. A late-2019 study by Bain/Google/Temasek found that 50% of Southeast Asians (home to 600 million people) are underbanked, 90%+ are under-insured and about 80% lack investment accounts. FinTech is rapidly solving those problems.
