WHY IS FINTECH IMPORTANT?
A Fintech industry makes traditional financial services more accessible, including investments, loans, bills, automated payments, savings, etc. It can also be the channel for innovative financial processes outside traditional banking, such as buying and selling cryptocurrency or online crowdfunding.
Fintech could manage point-to-point payments, eliminating the requirement of a third-party intermediary, significantly reducing bank transaction costs, and enhancing service quality.
Reduction in Transaction Costs
There have been numerous industry reports (e.g., Deloitte) predicting that fintech supported business-to-business and person-to-person payments systems would create reductions in transaction costs of between 40% to 80%...
To Complete a Transfer
...and require just 4-6 seconds to complete, as opposed to the current transfer process average of 2-3 business days.
WHY HAS FINTECH BECOME POPULAR NOW?
Fintech has become popular due to its potential for high returns and growth, even though many business models are still evolving.
Advances in technology, such as smartphones and cloud computing, have enabled more accessible and efficient financial services. Changing consumer demands for personalized and real-time solutions, along with growing skepticism towards traditional banks after the 2008 financial crisis, have also contributed to fintech's rise.
Additionally, increased venture capital funding, regulatory support, and innovations like cryptocurrencies have further fueled its growth.
Global fintech funding more than doubles to reach record $132B in 2021
The Traditional Financial System
Flows of Funds Through the Financial System
Lender-Savers
- Households
- Business firms
- Government
- Foreigners
Borrower-Spenders
- Business firms
- Government
- Households
- Foreigners
Intermediaries
Markets
MAIN FINTECH HUBS
Some regions are more open to fintech innovation than others. The factors that contribute to fintech growth include government support, a developed culture of innovation, proximity to customers, specialised talent, and flexible regulations. Considering these factors, the cities that have the best environment for fintech are London, Singapore, New York, Silicon Valley and Hong Kong. These centers have seen many years of either financial or technological (in the case of Silicon Valley) development. They also understand that it is important to collaborate with an ecosystem of firms to achieve greater results.
THE FINTECH COMPANIES
A fintech firm is one that specializes in offering Digital financial services (DFS) to consumers, or enables other providers to offer DFS. While many of these companies are relatively new to the financial sector, others are by now well-established public companies.
- Digital payment providers: e.g., PayPal
- Financial infrastructure/connectivity: e.g., Plaid
- Digital insurers: e.g., BIMA, Policy Bazaar
- Peer-to-peer lending platforms: e.g., Funding Circle, Investree