Anyone with a television tuned to Super Bowl 50 saw that financial technology’s moment has arrived. SoFi, PayPal, Quicken Loans, TurboTax were all companies that used the big game as a platform for announcing their fintech offering to the world.
Fintech, the portmanteau of finance and technology, has also arrived in the everyday language of anyone that tries to pay for something at the local drug store. Ever tried to swipe your credit card, only to have the clerk ask you to insert it with the chip? That’s fintech in action.
“I rarely see or touch cash anymore. From direct payroll deposits, to credit card transactions, to mobile payments, fintech is everywhere in my daily life,” says Will Jan, lead analyst at Outsell Inc.
It’s not just about finding more ways to separate people from their money. Cultural commentators are quick to tie any advancement in either category to this term. You may have heard phrases such as “robo-adviser” and “peer-to-peer lending” thrown around in personal finance columns. These are the latest advancements in the broad, ever-expanding category. And with little wonder. Fintech is the fire emoji in the startup world.
“Capital invested in fintech startups has consistently increased over the past five years, with a notable jump from $1.76 billion in 2013 to $4.74 billion in 2014,” according to analysis done by Pitchbook, a company that provides data to business decision makers.
Perhaps an apt analogy is email, nee e-mail, nee electronic mail. As the use of this communication platform gained wide adoption, the terminology became easier to define. The same can be said of emerging fintech. What was once “online banking” has morphed into a banking app, the use of which moves the user from banking customer to fintech user.
The example also shows how the terminology has evolved so quickly in the last few years. Today, instead of thinking of it as finance first—as in the outdated example of “online banking”—we should see it as technology enabling financial transactions, says Liz Lumley, director global ecosystem development for Startupbootcamp in London. “Technology ends when it no longer serves the customer need. Technology has no real purpose – unless it has a personal or business use. If you can use cheap, little Nokia phones to send millions of pounds of money around to people and businesses, as they do in Africa, then do that.”
For people such as Lumley—who has a day job that helps smart people with smart ideas secure the funding for fintech innovation—much of what fintech has come to stand for, and where it will continue to innovate for consumers in the future, is in how we pay for things. People will be looking for easy access to activities such as accessing their money, paying for services or finding innovative ways to barter for goods.
“Many consumers have still not touched a new age of financial services technology,” explains Ali Hamed, a partner at CoVenture. “Very few have ever heard of LendingHome, I even still get blank stares when I tell people about LendingClub, and there’s so much more available data that should be allowing small-to-mid-sized businesses to access credits using data straight from their point of sale.”
A data driven industry
Accessing the untapped reservoir of consumer data may be perhaps the biggest source of fintech innovation to come. “The next fintech innovation will be centered around retail investment and trading,” says Outsell’s Jan. “With the advancement in data analytics, and the explosive growth of both structured and unstructured data to help evaluate stocks and equities, retail trading platforms will be able to offer the next generation of decision engines for retail investors.”
Innovation will also help millions, perhaps even billions of people, gain access to a fairer financial system. “The underbanked will start to see credit extended to them in fairer ways because of new efficiencies in the banking system that can execute smaller transactions without paying the same fixed fee a bigger transaction would require,” says CoVenture’s Hamed.
Turning our data into a tool that makes a fairer financial system for everyone. This is the real value of fintech and where the promise for the future lies.