“Fintech” is the buzzword of the moment in financial services and it’s changing them at lightning pace and on a global scale.
But what is FinTech exactly? Wikipedia’s definition is as good as any:
“FinTech is the new applications, processes, products, or business models in the financial services industry, composed of one or more complementary financial services and provided as an end-to-end process via the Internet.”
Technology is the key and every corner of financial services is feeling the impact of new innovative ways of working. Take banking for example.
Banking
The chances are that anyone reading this is already using Internet banking. You may also be doing so on your phone or tablet. The established players in the banking sector have all caught up but the new range of challenger banks, with their brand new systems, unhampered by legacy concerns, are rapidly increasing their market share of basic banking services. These services include balance checking, making payments, setting up direct debits and standing orders and a number of conveniences such as providing access to other financial services such as savings and insurance products. In the UK, the challenger banks include: Aldermore, Atom, Monzo, Starling, Revolut and Tide among others.
Such on-line services may seem a bit old hat to the British customer. However, when you start to look overseas, particularly to emerging markets you realise what FinTech can really offer. To give one outstanding example, Kenya’s Mpesa, enables US dollar remittances and now has 80 million users across Africa and more are using it every day. In a region where large populations do not have bank accounts but mobile phone usage is gaining ground rapidly, Fintech is leapfrogging traditional banking services and relationships.
Trading
In the UK and in many other countries it is now possible to trade a wide variety of asset classes on trading platforms using mobile devices. This includes equities, exchange traded funds, bonds, foreign exchange, commodities and derivatives such as contracts for difference, options and futures. Some of these app-based platforms are familiar names, others not so. They include: MetaTrader 5, eToro, AvaTrade, Markets.com and Trade.com. There are a number of others.
InsureTech
In insurance as in banking, the big players are all looking for ways to enhance their offerings, lower their costs and provide greater convenience for their customers. We can say that familiar comparison sites such as GoCompare, Comparethemarket and Admiral-owned Confused.com are FinTech businesses because they mine data and harness clever algorithms to source quotes for insurance products.
But there is much smarter stuff than that going on. For a glimpse into the future consider “Pettech.” This is where technology links with pet ownership and pet insurance. For example, insurer RSA has invested alongside Neovia, a life sciences investor, in PitPat, an activity monitor for dogs to ensure that owners can keep their pets in good shape. This, according to RSA, is to lower the number of claims on pet insurance policies, and, by inference, reduce the cost of cover. This is just one example of the Pettech subspecies of InsureTech. There are many others in the UK, in the US and elsewhere.
RegTech
Activity across much of the financial services sector is now substantially governed by large amounts of continually changing and updating regulation. This includes the Basel Accords in banking, Solvency directive for insurance, MiFID for markets in financial instruments and many others. As these have evolved since the 2008 financial crisis, FinTech has developed Regtech capabilities.
In a nutshell, RegTech applications monitor whether financial services businesses are conforming to their regulations and/or help them to do so. They aid regulatory reporting and keep businesses up to date with new regulation. Esoteric though this may sound for the man in street, this is what is going on behind the scenes at the financial services firms that provide the services that we use.
Robo investing
Last but not least, FinTech tools are being applied to investment management. Wealthify, Nutmeg, Moneyfarm, UBS and Investec all offer so-called robo investments advice. They use on-boarding processes to figure out what sort of investor you are and recommend an investment strategy. Low touch, low fee investment services are offering easy ways to invest, especially to on-line orientated millennials who have little time or interest in traditional investment service offerings.
Across the board then, FinTech is reshaping financial services. Governments and regulators are supporting these developments to promote diversity of offerings, accessibility for consumers and to dismantle the hold that a few big players have typically had on every aspect of financial markets and activities. There will be plenty more FinTech innovations to follow.