The rise and rise of fintech as a concept, and as a startup investment opportunity, represents a juggernaut that would appear impossible to halt right now. Funding in financial technology in the banking capital of the world, London, has grown at twice the rate of Silicon Valley since 2008.
Banks and financial institutions have never exactly been slow to invest in technology, but the landscape of the industry is changing in such a way that even the most established financial services providers are sitting up and taking very real notice.
Fintech essentially refers to the new movement in financial technology startup companies, which are aiming to revolutionise the way in which banks go about their business, and the way in which we perform tasks such as making payments and international transfers, as well as investments and, well basically all areas of personal finance.
Charge Less, Gain More
Of particular appeal to consumers is that fintech companies charge less for their services. A simple approach it may be, but using smartphone technology, and creating efficient and intuitive mobile applications means that the initial startup and running costs of a fintech pales into insignificance in comparison with an HSBC or Halifax.
If all business is carried out online rather than face to face or over the telephone, the operational costs of any fintech company could be as much as 5 times less than that of a bank or financial advisory.
By being able to undercut established banks, lenders and traders, fintech startups have a very real opportunity to create the largest power shift in this vital sector since the dawn of the Bank of England.
From a consumer perspective, the fact that fintech companies offer the same services as those we currently pay fees for, but for a fraction of the cost can only be good news. That said; there is still a long way to go before the tide changes. Banks have obviously witnessed a massive decline in those using their high street services, but they do have the backing to adapt.
There is little doubt that consumers prefer being able to arrange finances via their smart device without the need to inconvenience themselves with a 20 minute phone call or visit to a branch. However, there are still some obstacles which must be navigated by the young new startup generation of fintech before they can mount a serious challenge to the old stalwarts of finance.
There is very strict regulation within all levels and areas of finance, and security is of paramount importance when dealing with financial data or any form of digital payment. The criteria necessary to meet the regulations is extremely specific, and can often result in long delays to the launch of new services as they wait for approval.
The other threat to the movement is that the existing infrastructure, reputation, brand and financial clout of all the multi-national banks, enables them to be able to effectively replicate any of the ideas implemented by fintech startups, and use them for their own existing customer bases.
Barclays for example launched Pingit over two years ago, the app allows customers of any UK bank to send money simply using the phone number of the recipient. Now this was available on PayPal for years previously but once the concept was introduced to a corporation with a customer base of over 48 million worldwide, the result was that they experienced an up-lift in new customers of over 20% last year. Many of these were drawn to the simplicity of the nature of the way in which they would be able to bank – that, and of course a very intense media campaign.
Now, Barclays are also attempting to get startup fintech companies to play for their side instead of against them. By offering mentorship, finance and office space to promising new fintech setups, Barclays become a very attractive proposition for corporate sponsorship. That, in addition to the promise of access to the coding for their own, established app, means that any fintech would rightly have their head turned by the industry giant. In return, Barclays will take a chunk of equity in the company and also negate the potential future challenge to their customer base. It’s old-school business, but it remains effective.
So whether the fintech decides to stay solitary, independent and fight against the dominance of the empire of banking and financial establishments, or whether it opts for unification with a multinational; from the consumer perspective, there is only going to be good news.
There are fintechs out there making waves currently. Some of the most prominent involve the connecting of individuals for personal loans with minimal fees, but this is an early movement not yet ready to challenge the billion dollar yearly lending offered by banks. Also of particular interest, are those offering investment and stock market solutions. Again, these are all in their relatively early stages of development however, the industry is monitoring with great interest the activity around the Silicon Roundabout in London, and it’s not because they are waiting for the pizza delivery boy to come.
Eventually we will see easier solutions relating to all areas of personal and corporate banking. Instant transfers with minimal fees due to lower running costs, no extended holding on the phone only to be told that you have the wrong department, no need to even have a cash card or an actual branch at all. Things are changing for us all, it’s happening now, and it could be here a lot quicker than we think….