You have only heard this word – fintech – but have no idea what it means? Then the below article by Sergii Papernyk, Head of banking and finance, Head of fintech, specially for “Novoe Vremia”, will be of great help for you.
Fintech and Ukraine: What is FinTech
Modern society has to get used to the unexpected. The progress of science and technology is moving very fast, sometimes replacing the whole way of life even before the change of generations. However, sometimes a technological boom appears where you do not expect it.
While the world was actively watching the rise of Silicon Valley, the incredible stories of funding at Kickstarter, the hype around IT companies and the development of the Internet of things, the industries which, although technologically advanced but simple and understandable for people not being geeks, confidently moved forward. Among them – medicine, transport, communications and finance.
Financial technology or Fintech – the term is far from new, but only in recent years, this activity began to leave the banking world and acquire features of a separate industry. According to the latest reports submitted, as of mid-2017, the volume of investments in the Fintech industry exceeded 8.4 billion US dollars.
So, what is Fintech? In its broadest definition, this is exactly what is: the technologies used and applied in the financial services sector, mainly used by the financial institutions themselves. But more and more Fintech presents technologies that radically change traditional financial services, including mobile payments, money transfers, loans, fundraising and asset management.
Companies engaged in this industry can be divided into two groups:
- Startups providing technical solutions for existing financial companies
- Startups who work directly with consumers of financial services.
According to the database LTP MEDICI today registered more than 10 thousand Fintech companies operating in various fields. Of course, most of them are far from being fully sold on the market. However, many already have a solid capitalization and a portfolio of customers.
In the areas of activity, the following categories of Fintech-companies are divided:
- Personal finance management – More than 600 start-ups have implemented their mobile and desktop applications to monitor personal funds movements, receive detailed reports and assumptions about future costs based on predictive analysis.
- Payments – One of the oldest and most popular areas of financial technology. Strangely enough, even in the modern world of SWIFT, this direction is still developing, in the near future it can offer more progressive approaches to financial transactions. An important role in the development of payments can play the technology of blockchain, but about it later.
- Lending – Despite the lack of significant results in the market, startups in the sphere of p2p (peer-to-peer) lending are among the most popular. Even the very idea that lending is possible without the participation of a banking institution on the basis of distributed technologies certainly merits separate praise. Today, new technologies in the sphere of crediting are gaining popularity not only in the consumer sphere, but also in the business sector.
- Investment platforms – Investments are becoming increasingly automated and affordable for retail investors. Robotics and predictive analysis based on Big Data have long become those services for which investors are willing to pay substantial money, instead of playing in randomness. Mobile accessibility to the portfolio attracts even people who have never participated in investing.
- Collective financing (Crowdfunding) – Kickstarter and Indiegogo are still the most popular venues for venture financing. However, the market is open to new ideas and a great many companies offer their solutions, allowing investors and start-ups to find each other.
- Security – Companies in this field provide their services to banking institutions, simplifying and automating the issues of client authentication and developing measures to avoid fraud.
- B2B Fintech – A separate direction for the fintech, which solves the problems of transactions and data exchange in business. The last promising trend of this activity is the development of smart contracts based on the blockchain.
- Remittances – Unlike start-ups in payments, companies in this area are working on innovations that allow the transfer of funds without the participation of banking institutions. Typically, the technology provides a simple and understandable mobile platform and the use of alternative approaches to client authentication (for example – through social networks).
- Analysis of Big Data – Big Data is the talk of the town. If advertising and PR-agencies have long been using unstructured personal data in their activities, the financial sector has yet to find their place in their business. However, already more than 100 Fintech start-ups in the world are ready to help them.
- RegTech – Unique and completely unknown in Ukraine direction of innovation, allowing quickly and automatically adapt the business to changes in legislation and market conditions. In some ways RegTech is part of the now popular LegalTech direction, somewhere in touch with InsureTech. He has yet to find his place in the financial sphere, but start-ups of this direction are already raising millions of dollars.
- InsureTech – The financial sector is far from being limited to banking. Insurance makes its progress by coming with a wet sail. It already offers the market fully automated insurance products. Mobile applications, interaction at the level of the Internet of things, p2p-insurance, automation of recourse payments – this is not a complete list of start-ups in the field of insurance technologies. This direction is represented by more than a thousand fintech companies and their number is constantly growing.
- Artificial intelligence – It is unlikely that this direction will become dominant in the financial sphere on the horizon, since all known developments represent only the so-called “weak” form of artificial intelligence. However, the use of such solutions can reduce the most significant costs of financial companies – staff costs. Consequently, the prospects of such fintech startups can unlikely be overemphasized.
- Neobanks (Challenger banks) – Unique solutions in the field of banking services without offices can easily outshine classical banking institutions. The only thing they lack is customer confidence and regulatory regulation.
- Crypto-currencies – Whether the crypto-assets are real equivalents of currency we will found out soon. However, crypto-currencies are already being traded, bought, sold and are subject to derivatives. Millions of holders of crypto currency and billions of dollars of capitalization speak for themselves. Fintech-startups in the field of crypto-currencies include exchangers, mining companies, investment and ICO-sites. However, even the most professional experts can not see the future of the crypto-currency industry.
- Blockchain – The technology of distributed registries changed the world view of our community so radically that it seems as if there were only a few days left before the whole blockchain-internet. We know that the use of blockchain-based solutions is possible in any sphere, including financial technologies. The most famous banking transaction solution is the Ripple platform.
However, as time goes on, there are more and more critics claiming that the implementation of blockchain-protocol is inexpedient and more costly than existing technologies. Hundreds of fintech startups already offering blockchain and earning money on it are an answer capable to wipe the eye of any critic.
The above classification is highly conditional. Innovative approaches are therefore considered so, because they are called to break the templates.
In the conditions of total unpredictability one can not expect that the visible technologies will actually turn out to be what they seemed at the beginning of their development. However, observing the leaders of innovation and the development of technological giants, one can try to predict what everything is going on. Among the emerging trends of development can be identified the following:
- Gradual abandonment of physical interfaces in favor of voice control and visual authentication
- Using Virtual Reality Technologies
- The output of the level of computing power to a completely new level (it is possible to use quantum computation).
To date, such technologies are not available to the ordinary client, but their appearance and distribution is already possible in the foreseeable future.
And yet, the main obstacles to the development of the Fintech are not technology at all. The financial sector remains highly conservative, primarily because of the high riskiness of the operations carried out inside it: the loss of funds will mean significantly more to the client of the financial company than, for example, the loss of an account in some other service.
Consequently, the financial industry remains one of the most regulated. Often, initiatives in the field of financial technology face the need to obtain licenses and special permits, often innovative approaches break instructions on certain transactions, violate the principles of verification and authentication.
Nevertheless, progress still finds detours and moves forward.
It is very important for the state regulation of financial activities to foresee and assess trends in the development of technologies, reacting to their emergence by an adequate change in regulatory and legal acts. Progress does not require stimulation from the state, it is satisfied with what the market can give it. Modern innovators will have enough and adequate approach of government officials.
Recently, regulators of the Ukrainian financial market have stated their loyal attitude to fintech. Let’s hope that these statements will enter constructive interaction with start-ups and will not be empty words.