FinTech – hybrid between technology and financial services

A new financial-technological industry grows globally, and it’s called FinTech. FinTech is a hybrid form of finance and technology, and its emergence is predefined by the altered user requirements towards how they would like to perform various banking activities, such as paying, managing their funds and insurance. What is hidden between the lines of FinTech’s meaning? It’s a segment of the dynamic financial technologies, which are focused on proposing innovative products and services, traditionally perceived as a trademark of the authoritative financial institutions. According to The Pulse of Fintech, Q1 2016, research conducted by KPMG and CBinsights, the FinTech industry has doubled the size of its funding up to 12.2 billion dollars, whereas last year its funding calculated to 5.6 billion.

The research also states that due to the high levels of funding, the industry is developing at a higher pace. However, the new technologically-orientated industry carries an invocation for a change, not only towards the method banks manage their business, but also towards the remaining sectors, such as insurance and asset management. According to the research, FinTech will directly compete with up to 28% of the banks and their payment transactions business as well as with up to 22% of the asset management and insurance companies.

FinTech changes banks and the traditional methods of banking. With its arrival, Fintech initially focused on the traditional banking services. There are fully digitized banks and opening a bank account doesn’t require walking into their offices anymore, and everything is present online. Moreover, some of these banks offer interest rates on deposits much higher than the traditional financial institutions, at times reaching up to 4%, whereas interest rates nowadays are incredibly small. With the creation of unique platforms for lending from peer to another peer, e.g., peer-to-peer lending, clients and firms have started receiving and giving loans to each other.

These platforms turned towards different sources of information and lending models, as well as towards robust risk-evaluating systems to minimize their risk exposure. Also, P2P platforms are powerful instruments extremely oriented towards the specific needs of every user. They work at extremely low operating costs and that allows them to drop the price of loans. Both, borrowers, who have received loans with convenient terms, and lender-investors, who have received higher return rate are satisfied. An additional convenience is an easy and comprehensive process that does not require physical presence and queueing at the bank offices to fill and submit documents, saving valuable time to clients and users, which is a time waste. According to BI Intelligence’s data, last year P2P lending platforms in the US have listed loans that amount to 6.6 billion, which marks an annual increase of 128%.

FinTech changed the methods of money transferring. In regards to fund transfers, people are looking for two main components – instant and secure transfers and lower rates. The new FinTech industry provides exactly that, and at the moment it is picking its first fruits. Money transfers to and from abroad have never been easier and cheaper, and it all happens with a few touches on a smartphone.

Currently, the second wave of Fintech evolution within the financial industry is being observed, and it is being directed at the insurance companies and the asset management sector. Approximately 74% of the insurance companies are worried that FinTech will cause an imbalance in their industry within the next five years. According to BI Intelligence, 51% of the asset management organizations have expressed the same opinion. The good news is that deploying enough information for the tendencies and development of the financial industry, companies within the sector can respond adequately. Instead of being indifferent, leaders in various financial areas can join and utilize the new trends. One of the options is to cooperate with the already existing FinTech companies or to create new ones, which respond to the new customer needs.

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