FinTech is a portmanteau that’s thrown around a lot these days, especially in the startup scene.
At a basic level, FinTech is disruptive technology that’s impacting elements of the financial sector that include (but are hardly limited to) mobile payments, loans, and fundraising.
Interested in financial technology? Check out our new report.
According to Technavio, investments in the FinTech sector jumped from $12.21 billion in 2014 to $23.79 billion in 2015. The bulk of the investments came from Silicon Valley (no surprise there) and New York, as well as the UK. More recently we’ve seen a jump in FinTech investments in Europe.
FinTech investment focus areas by 2020
Source: Technavio
The reason that FinTech is taking off with such voracity is that startups require a lot of capital to get off the ground. But as anyone who has tried to start a business knows, going through traditional financial institutions to get this money is a slow, often painful process that doesn’t always yield the necessary funds.
So in steps FinTech to make this process more efficient and cheaper. Companies and products in this sphere make it easier for entrepreneurs to get the money they need to start a business, and for investors to put money into a business they deem worthy—often by circumventing traditional financial institutions completely.
And it’s not just about sending a receiving money—there are FinTech startups that focus exclusively on alerting customers to hidden bank fees, and others that help users manage their mortgage payments. If there’s a financial problem that needs solving, there’s a FinTech provider with a solution.
FinTech will see massive growth through 2020
If you thought the number of FinTech investments between 2014 and 2015 was impressive, the five-year forecast is going to blow your mind. The 2015 market value of $23.79 billion is going to grow more than eightfold to reach $211.7 billion by 2020, growing at a compound annual growth rate of 54.83%.
Global FinTech investment market 2015-2020 ($ billions)
Source: Technavio
Like most things in the startup world, at first glance FinTech appears to be the perfect solution. But dig a bit deeper and there are a few bugs that still need to be worked out
The big bug at the moment is that currently, there’s not a lot of regulatory oversight for alternative financing. Financial regulators are much slower to adopt new technology, so we’re in this period where the technology has outstripped regulations, and regulators are struggling to catch up. Because it’s a deregulated environment, there’s a much higher risk of loss for businesses pursuing alternative financing.
However, if you glance at that growth rate again, it becomes apparent that the risk of loss is just not enough to make entrepreneurs shy away from the possibilities of FinTech.
Realistically, FinTech won’t replace traditional banking—the most likely scenario (for now, at least) is that FinTech will replace certain aspects of banking while also complementing traditional payment practices. But traditional banks need to seriously consider customer demand for mobility, transparency, instant access, and competitive products. Otherwise, they risk losing more forward-thinking customers to the expanding FinTech market.
Want more info about the FinTech market? Check out Technavio’s new report.
Also, check back tomorrow, because we’ll be highlighting a few vendors that are currently making waves in FinTech.
