Fintech, from a niche to a global opportunity

Machine learning, artificial intelligence, predictive behavioural analysis and data-based marketing are increasingly characterising the provision of financial services to users, so much as to receive the specifically coined definition “Fintech”, a combination of “Finance” and “Technology”. Originally limited to information technology applied to the back offices of credit institutions or commercial companies, today it describes a wide range of services for individual consumers and companies such as money transfers, cheque deposits via smartphones, remote credit granting, fundraising or investment management. According to EY’s Fintech Adoption Index 2019, the implementation of Fintech services had steadily increased from 16% in 2015 to 64% in 2019. Fintech awareness among non-users has also increased worldwide. 
According to the EY report, 96% of consumers is familiar with at least one financial technology service for transferring money or making payments. 

The rapid spread of Fintech services has led to a race to exploit this sector’s potential, especially in emerging countries where access to the internet and smartphones is now increasingly widespread and where, in certain cases, there is greater receptiveness to innovation. While in highly developed markets, most citizens possess a smartphone and have access to a bank account, in Asian or African countries where population growth rates are high, possession of a new generation smartphone is disproportionate to access to banks. Several companies have attempted to exploit these new potential markets such as Alipay from the Ant Financial Services Group, WeChat Pay in China, Paytm in India and Safaricom’s M-Pesa in Kenya. Access to new markets and the widespread diffusion of social networks have also pushed large IT companies to channel investments in the sector, including Facebook that in 2020 may launch its own digital currency “Libra” which, however, has been met with strong resistant from governments fearful of backlash for their monetary authority. 

However, according to several experts, digital currency is an issue that will have to be faced especially by governments and central banks that could find themselves creating a digital currency and abandoning traditional standards. In the current split, Fintech as a sector is in rapid growth, thanks mainly to growing user awareness and a dynamic and diversified corporate landscape that now circumnavigates the globe. North America, with the United States and Canada, is confirmed as the geographical region with the highest risk capital and hosts many of the highest value Fintech companies. An example is the value of the start-up “Stripe”, that with 35 billion dollars exceeds that of more than half of the members of the S&P 500. Stripe is joined by other smaller companies with great potential such as the Coinbase cryptocurrency, the free trading app Robinhood Financial, digital bank Social Finance and Credit Karma platform, each valued at over 4 billion dollars. 

As with other sectors, Asia is the continent with the greatest growth potential. Over the past two years, Fintech’s funding in the region has more than doubled from 5.2 to 11.2 billion, contributing almost 43% of the 23.2 billion in global investments. Six of the seven major Fintech companies come from Asia, where the most important centres – Singapore, India and China – are becoming hubs of innovation and adoption of global Fintech. The investment boom also reflects an insufficient market demand and faster adoption of technology, where China and India compete daily. In the second quarter of 2019, India, home to the start-up Paytm for mobile payments, outperformed China by number of transactions. But China still boasts the most valuable Fintech: Lu.com, the wealth management platform supported by the Ping An Insurance Group that was recently valued at 39 billion dollars. However, new companies are rapidly emerging with the support of local governments. Thailand’s national electronic payment system is gradually leading to a reduction in the use of cash, while Singapore’s monetary authority has created a Fintech office of the National Research Foundation as a single virtual agency to support all investments in the sector. Other countries are attempting to keep up with the global trend. 

In Europe, the sector is driven by highly innovative markets led by the United Kingdom, Lithuania, Estonia, Germany, Sweden and the Netherlands that are currently considered the main forces in European Fintech development. Most European Fintech companies operate in the payments sector. The current market leaders are Revolut, Transferwise, N26, Monzo, Funding Circle and Klarna, with a capitalisation of over 1 billion dollars. The development of new companies is facilitated by favourable and stable regulations defined mainly by the PSD2 European directive on payments and the large volume of investments: in 2018, investments in Fintech companies in Europe reached almost 34.2 billion dollars. 

Considering this, a prediction for the future may include increasingly interconnected markets, greater awareness of users and suppliers of services and especially the development of increasingly complex hardware and software. We could also see a greater cohesion of the financial and technological worlds, allowing institutions new opportunities ranging far and wide beyond traditional banking services. The next few years will probably be dominated by six rapidly evolving trends: artificial intelligence, an increasingly widespread use of vocal commands, the evolution and use of Blockchain, 5G wireless expansion, cyber security and a downsizing of certain existing Fintech ecosystems in the fastest growing markets such as China.