Fintech is an abbreviation for financial technology. However, despite the popularity of the term, there is no single definition either in the scientific literature or in the industry. In a broad sense, computer technologies, which began to be used in the last century in the banking and financial industry, can also be referred to as a financial instrument: IT solutions for back offices, ATMs, Internet banking, online trading, etc. An inseparable characteristic of all financial services is the increase in efficiency of separate processes and the financial system as a whole. A distinctive feature of the new generation of financial services is their focus on improving the convenience of end-users, reducing the cost of transactions and alternative methods of monetization.
The popularity of financial services is explained primarily by the increase in the share of millennials among the economically active population. The young generation, whose growing up coincided with the era of Internet distribution and accustomed to interacting with the world around them online, are forcing the system to change the models of interaction with customers, guided by the approaches formed by such IT-giants as Google, Facebook, and Apple. This includes not only the speed and convenience of services but also increased attention to the needs of both social groups as a whole and individual users.
The lack of awareness of the need to change under the new realities has led to the fact that young people consciously avoid major players in the financial industry. According to Facebook IQ 2016, more than 90% of millennials do not trust the existing banking system, and almost 70% believe that banks do not understand their needs. Thus, we can conclude that the traditional banking system is inefficient and outdated for the younger generation - 45% of respondents are ready to switch to alternative financial solutions.
The data is confirmed by the authoritative consulting company Accenture, which conducted its research in the period from May to June 2016: about a third of customers of banks and insurance companies would switch to Amazon, Google or Facebook if they launched the appropriate services. Similar views are held by the founder of the world's largest digital bank, Tinkoff Bank Oleg Tinkov. It is worth noting that the largest IT corporations are already taking their first steps in this direction: Facebook has allowed sending money through messages, Google is actively developing its mobile wallet, and Amazon lends to small and medium-sized businesses, and this is far from a complete list.
The financial ecosystem consists not only of startups and financial institutions but also of technology companies and infrastructure players. Regulatory authorities, new technologies and IT solutions, investors, business incubators and accelerators, and, of course, users themselves have a significant impact on the development of the industry.
According to the classification of the Venture Scanner research company, the financial technology market can be divided into 13 segments: online lending, personal finance, payment services, equity investments, cross-border transfers, retail investments, institutional investments, security, infrastructure, business tools, crowdfunding, online banks and data aggregators. It is important to note that this classification is not generally accepted and even Venture Scanner itself uses a more detailed classification in individual reports, for example, divides the online lending segment into consumer and business lending.
In total, as of January 2017, Venture Scanner has allocated more than 2,000 financial start-ups from 59 countries that attracted $58 billion in investments. It is worth noting that the survey did not include the largest Chinese financial companies, such as Ant Financial and Lufax, as they are large companies supported by local institutional investors and attracting billions of dollars in a single investment round.
The most popular among venture capital investors is the online consumer finance segment, with over $17bn raised by startups in the industry, followed by payment solutions and online business lending, which raised $11bn. In terms of the number of startups, personal finance services (more than 200 companies) are in second place after consumer lending (270 companies), however, the volume of investment in the latter category barely reached $3 billion. In my opinion, this is due to the failure of the business model - personal finance services are very popular among users, but the way to increase revenue has not yet formed and investors are not in a hurry to invest heavily in them.