Financial technology, commonly known as fintech, is one of the most popular areas among software engineering businesses today. Virtually everyone deals with money and payments every day, and creative minds can come up with tons of solutions to improve those interactions. Solutions to people’s finance-related needs—like many kinds of solutions in the modern world—can come in the form of software.
Below is an overview of fintech today showing how diverse and full of opportunities the sector is. The overview can become a source of inspiration for people thinking about investing in fintech or starting a business related to it.
What is fintech?
Fintech is the sector that improves the delivery and usability of financial services by innovating them with the latest technologies. It might not have crossed your mind, but fintech has sneaked into many parts of our lives. For example, we are now able to pay for our groceries and meals with just one click on our smartphones or pay for taxes online without having to deal with official institutions in person.
Similarly, everything that makes our interaction with the banking system faster and more convenient is made possible by fintech. As this sector has been growing rapidly in the past few years, areas of focus have widely extended from online banking and payments to more pioneering segments like insurance and investment.
How fintech is growing
As reported by Statista, the UK and the US are in the top 5 list of countries leading in the adoption of fintech. UK Finance said that the number of adults using fintech apps had risen from 48% in 2018 to 72% in 2019. This upward trend will probably continue: research by deVere group shows that the 2020 lockdown has driven a 72% jump in the use of fintech apps in Europe. There were increases both in the number of users and in the amount of funding given to fintech startups.
Concerning investment, the trend for the first quarter of 2020 has slowed down compared to the data from 2019, the year when fintech reached the highest funding it had ever received: 135.7 billion dollars. However, investors were hopeful of an optimistic outcome later.
The global pandemic that hit the world and economies in 2020 sets new trends among investors. Even though the number of funding given to emerging firms will decrease, it is predicted that investment in the existing fintech companies, which have a more considerable customer base, will remain high.
What kind of position does this put new startups in? Although it has become more challenging to find investors, Fintech startups are managing to attract funding. Among them are Primer and Credit Kudos, who got 3.2 million pounds and 5 million pounds respectively in the first quarter of 2020.
Another challenge is the mobility of adapting and developing new technologies. The new reality that came with COVID-19 has completely changed our lifestyles and habits. This, in turn, has encouraged fintech companies to start looking for new solutions and strategies for adapting our lives to the lockdown. The ability of smaller startups to adapt to the changing environment and provide new technologies is higher compared to established companies operating in the financial sector.
Overview of fintech areas
Fintech covers various areas of our everyday life, from paying for the subway and taking microloans online to robotic process automation of financial and administrative tasks.
Generally, five fintech areas can be discerned:
- Digital banking
- Payment gateways
- P2P lending
- Personal finance
- Robotic advisors
Let’s take a look at each of them in detail.
Digital banks are taking over the banking world with their fresh and user-oriented vision. As reported by The Guardian, in 2021 the number of people using mobile banks in the UK is expected to exceed the number of those using brick and mortar institutions.
For many people, traditional banks always bring about the association with a long list of rules and regulations, slow service, and frustration. In our fast-paced world, users increasingly favor suppliers who can provide quick and convenient service. Digital banks have occupied this vacant niche and have been promptly responding to customers’ needs and requirements by bringing a fully user-oriented approach into the industry.
The times when you had to spend a day waiting in long queues, bringing a massive load of documents, and dealing with bank tellers are long gone. Today, to open a bank account, you only need to have your phone and some ID with you. The whole process will take you no more than 15 minutes plus an additional week on having your physical card issued and shipped.
AI and ML are a big part of providing such seamless service as they ensure that every client is getting personalized assistance and has access to 24/7 customer support. Moreover, fintech apps help you easily transfer money among accounts and efficiently manage your budget.
Some of the well-known digital banks:
Some of the emerging companies:
It is hard to find a commercial product that would not require billing. Thus, all online purchases that we make are possible thanks to payment processing companies. Most of the time, after we click the “order” button, the process that seems to be happening only between two parties—the seller and the buyer—is joined by an intermediary: the payment processing companies.
Most of the e-stores and online service providers heavily rely on payment gateways for delivering a secure and seamless checkout process. Ensuring full security on these platforms is really important as they can easily be used for money laundering. Such companies are dealing with very sensitive and personal user information, and this is why building a trustworthy brand with the latest encryption technologies is a must for them if they want to attract customers.
There are several big players already existing in the market such as PayPal, Stripe, Amazon Pay, and a few others. You most probably have had a chance to encounter at least one of them before. PayPal alone, for instance, comprises more than a half of the market share in this whole segment.
If you have a product that requires the implementation of a payment processor, you can take a look at already existing products: Stripe Connect, Chargebee, or Braintree. Integrating a well-established service will take care of all the necessary regulatory and legal compliances as the current successful players closely monitor and adhere to finance-related government policies.
Moreover, such platforms usually have antifraud systems already in place, so your product and transactions will be safe. If you want to get more information on how to integrate Stripe Connect into your project, take a look at this article.
We all know how daunting the bureaucratic side of applying for loans in traditional banks is. It might take weeks or even months to get your request approved, even if you have a good credit history. For people without a steady income, this process is even less manageable. Banks can easily reject your loan request based on your poor backstory or your young age.
As banks were failing to meet certain potential clients’ needs, P2P businesses came up with more convenient and practical solutions. P2P lending apps provide platforms for borrowers and lenders to directly negotiate the terms without bias or regulations coming from banks.
Statistics show that younger people, in particular, prefer this segment as more than half of P2P lending apps’ users in Europe are people aged between 22 and 37. Another great advantage of borrowing money through fintech apps is that the interest rates are usually lower than those in banks due to the higher competition among lenders.
Some of the well-known companies are:
And among the new ones are:
A useful tool for people who are working on the development of a product in this sector is Plaid API. This product can help you deliver a smooth underwriting process. It will gather all the necessary information from a borrower and then calculate the total amount of money that can be safely given to this person so that the lender is not taking excessive risk.
Managing your personal finances is easier than it has ever been. New apps allow us to keep track of our spending, plan the budget, manage savings, and do many more things with our money. Treat them as your personal assistants who are dealing with all the necessary but time-consuming money-related tasks.
With tools that connect to your cards and digital wallets, you may no longer be afraid of exceeding a balance. There are apps like You Need A Budget that will keep an eye on your money. It will help not only in managing immediate needs, i.e. not exceeding your monthly budget, but also in planning future spending and saving money for your long-term goals. Importantly, detailed and easy-to-follow spreadsheets generated by these tools assist users in making wiser financial decisions.
Another sector in personal finance that has profoundly developed in the past few years is insurtech. Investment in startups grew from $300 million in 2013 to $6.37 billion in 2019, and the latter is the largest number this market has ever seen. A very conservative industry is now being reshaped by the technologically advanced newcomers who are providing efficient services at a faster rate.
For example, the Zesty insurtech estimates the risks from catastrophic events for commercial and private properties by using AI on an extensive database. The platform helps insurance carriers accurately calculate costs, deliver a smoother customer experience, and improve underwriting of risks.
Some of the other great products on the market:
A robotic advisor sounds like something from the future, doesn’t it? And it really is: new technologies for wealth management are helping young investors efficiently allocate their assets with no human interaction and develop their portfolios. Your tailored advice is being powered based on the information you provide through a questionnaire, including your investment goals, financial opportunities, and risk tolerance.
Costly services of financial planners are now becoming more affordable with the help of these digital platforms. This market also has many opportunities for attracting new clients and enlarging the market share. It is because the barrier for entry is way lower with robo-advisors ($5,000) compared to human advisors ($100,000 to $200,000).
The main objective of financial robotic advisors is to make investment more convenient, affordable, and hassle-free. Potentially, you can use them not only for personal wealth management but also for corporate decision-making. The full potential of the functions of these technologies has not been reached yet as most of the recommendations usually wholly consist of ETFs. What if investors want to go beyond that?
For example, CI Direct Investing is offering two different portfolios for its users with different pricing. The first one will work on a portfolio consisting of low-risk ETFs, and the second one will include mutual funds, too, but for a higher interest rate.
Other products on the market worth checking out:
Fintech is a sector full of potential. It is completely changing our habits and familiar lifestyles, bringing a fresh and more convenient approach to managing finances. Moreover, it not only transforms the way we manage our personal wealth but also disrupts the long-standing traditions of conservative banking and insurance.
Fintech companies are implementing the latest innovations using AI and ML to improve this sector’s efficiency and user experience and to make services more client-centered. The products mentioned above are only the tip of the iceberg. The industry is much broader as it now deals with blockchain, SaaS, and many other technologies.
If you have a fintech idea, you can take a look at the following accelerators:
Or, if you have a product and need consultation on your fintech business, the best solution is to find a trustworthy IT partner.