Last updated on March 12th, 2016 at 08:00 am
With the rise of the Internet and mobile devices, many industries have been disrupted. Everything from taxicabs to law, there hasn’t been an industry that tech hasn’t transformed. This, of course, has also been a tremendous boon for the average consumer.
Even the financial services industry has been interrupted through the advent of FinTech.
This term refers to tech solutions that disrupt, either incrementally or radically, the financial services sector, whether it’s applications, products or business models. And it seems everyone is beginning to take notice: governments, central banks and the major players on Wall Street.
A look inside the multi-billion-dollar industry
Most financial experts and industry observers will concur that fintech is the future of finance. But has the future already arrived? It’s estimated that fintech is already a $50 billion industry as investments have quadrupled in the last five years alone. Fintech startups are popping up all over the world, which has some global financial regulators proposing new regulatory frameworks.
Small business owners, consumers and online vendors understand just how intricate it can be when it comes to filling in an extensive financial document, inserting payroll taxes and complying with state financial regulations. It’s a complicated process to say the least. But with the stress, difficulty and anxiety resulting from these forms and rules, comes an opportunity for disruptors.
Axiom is a fintech firm that has developed solutions and applications for common problems that businesses face, including financial and energy risk management, regulatory reporting, compliance and financial control. Typically, this is something that’s very expensive to work on, but with tech platforms it’s become a lot more affordable for small and large businesses alike. Its software has been adopted by major global financial institutions, large corporations, asset managers and energy firms. Its turning heads and simplifying the process.
Axiom, and others like it, are the pioneers in this young sector. Due to the fact that obscene financial regulations can be found in pretty much anywhere in the world, the fintech startup trend is not only a valuable one but also an international one. It’s found in India and Great Britain, the United States and Australia.
But is the fintech industry about to become FinTech 2.0? It looks like it. Over the next year two, there is going to be a lot of change that involves the major players of yesterday. Here are some of the trends you will likely witness over the next 12 months or so:
- New stakeholders will enter the space.
- Partnerships will form between startups and big business.
- Banks will begin to work with the fintech space.
- Security will finally be taken seriously by all parties.
- P2P lending firms will continue to grow and innovate.
Sonny Singh, Chief Commercial Officer of BitPay, thinks something else will also unfold before our eyes: the enhancement of the mobile wallet wars between the likes of Chase Pay, Apple Pay, Walmart Pay, MCX and others. These products, Singh says, will have a hard time being adopted by everyday consumers, which means these brands will try even harder to promote.
“Storing your credit card in your mobile wallet doesn’t solve a large pain point as you still need to physically carry your driver’s license, health insurance card, etc,” he wrote in an op-ed in January. “Until consumers can leave their entire wallet at home, the mobile wallet just isn’t that appealing to consumers.”
Central banks – for or against?
What may surprise some is the fact that central banks, at least some, are intrigued by fintech, and in a good way, too. The Bank of Russia recently announced that it’s pushing for fintech within Russia and within the borders of its allies. Therefore, it’s urging startups and corporations to put forward advancements and suggestions to accelerate the adoption of the fintech sphere.
One particular area that the Russian central bank is interested in is bitcoin technology. Although the federal government and the central bank have been indecisive about the peer-to-peer digital currency since 2013, Russia is beginning to understand the potential benefits of such technology.
The central bank stated that bitcoin technology could increase banking efficiencies and establish global standards. It also confirmed that it’s starting a self-regulating board that permits industry names to work together on fintech efforts. In other words, fintech has been given the government’s stamp of approval.
Just because Russia is interested in fintech, it doesn’t mean the globe’s powerful central bankers are as well.
Bank of England (BOE) Governor and G20’s Financial Stability Board (FSB) Chairman Mark Carney wrote in a letter last month that global regulators will have to set up a framework in order to prevent the fintech industry to disrupt traditional banks and financial services. If you read in between the lines, Carney means governments have to protect financial institutions.
“The regulatory framework must ensure that it is able to manage any systemic risks that may arise from technological change without stifling innovation,” Carney said in a letter to G20 finance ministers.
Fintech is here to stay, but just like how Uber disrupted the cab business and how Airbnb disrupted the hotel industry, fintech firms may experience some pushback. And this pushback may not just originate from the giants that fear their end, but also the governments that protect, what some may consider, those dinosaurs. Fintech startups will just have to watch out.
Come back on Thursday to read Samson Okalow’s profile of an emerging fintech start up.