Introduction to the FinTech, Cryptocurrency & Electronic Payments Industry

One of the fastest growing global business sectors in recent years has been 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. As of June 2024, the global cryptocurrency market was $2.37 trillion, according to CoinGecko, however the value of cryptocurrencies has been very volatile, so rapid changes (increases or decreases) in the size of the market will likely continue to occur.

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, there are billions of consumers worldwide who have access to smartphones, in both mature economies and emerging markets. Over 1 billion new smartphones are sold yearly, with many consumers eager to upgrade to the latest handsets and features. 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) were underbanked, 90%+ were under-insured and about 80% lacked investment accounts. FinTech is rapidly solving those problems.

FinTech innovation has been exceptional. For example:

= Square’s tiny credit card reader plugs into smartphones to enable the phone to be a portable card reader and POS (point of sale) device. (Square’s parent company recently changed its name to Block.)

= Paypal’s online payment system makes it simple to make and manage payments, 24/7, on a worldwide basis.

= Plaid’s connections to bank account data in real-time makes it possible to verify account balances and ownership, while enabling thousands of app-based financial and payments firms to grow and prosper. (Plaid is known as a financial account information aggregator, a vital function underlying many FinTech services. These aggregators also offer sophisticated, artificial intelligence-driven analysis of consumers’ spending and account histories.)

= Nubank is revolutionizing the convenience of mobile banking across Latin America.

= Walmart is leveraging its massive, global customer base to expand into financial services and FinTech. Walmart is investing heavily in its consumer bank-like unit under the brand name “One.” Walmart sees this as a way to boost both store traffic and customer loyalty. One will expand to cover everything from BNPL (buy-now-pay-later) plans to debit cards, checking accounts, savings accounts, credit cards and probably investment services.

Fortunes have been made by many FinTech company founders, while convenience is soaring, costs are plummeting, and delays in making and receiving payments are disappearing. At the same time, traditional financial companies are adapting and modernizing their own services while launching new innovations.

= Zelle, the popular peer-to-peer payments system, was launched by a technology-driven company that partners with America’s leading banks.

= Merrill Lynch, owned by traditional banking giant Bank of America, offers no-fee online trading for many types of trades. Many of its competitors also offer no-fee trades.

= Capital One, a massive bank that is one of the world’s leading credit card issuers, is a hotbed of financial technologies development and investment.

= Both Visa and Mastercard, the world’s leading credit card processing firms, are making immense and continuing investments in FinTech startups, while developing their own improved technologies for rapid payments and other innovations.

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