By Linna Zheng, 3B CFM

Financial technology (fintech) is a booming industry, with more than $50B being invested in startup companies worldwide now compared to 1.88B back in 2010. China leads the world in the fintech revolution, occupying 5 of the spots in Fintech’s top 10 startups this year. Tencent and Alibaba (e-commerce) have more customers than China’s top banks. New countries are joining the list of up-and-coming startups, including South Africa, France, Mexico and Singapore.

Main services provided by fintech:
– Lending
– RegTech
– Payments
– Digi-currencies
– Insurance
– Data & analytics
– Capital Markets
– Wealth
– Crowdfunding
– Blockchain
– Accounting
Note: blockchain is a distributed database that is the foundation of bitcoin.

On the top 100 fintech list this year, we are seeing lending return to the fore. Regtech (regulatory tech) is becoming noticeable, and insurtech (insurance tech) continues to rise.

Some interesting things I noticed while reading through the top 100’s descriptions:
– Ant Financial has an inclusive financial ecosystem for small businesses and individual customers. Their slogan? “Bring small and beautiful changes to the world.”
– Qudan provides micro-lending services for students who do not use credit cards (oh right, there are people who do not use credit cards!)
– Some banks such as Atom Bank are app-based and have no branches.
– Kreditech is improving credit rating accuracy, especially for the underbanked (people without sufficient access to banks)
– ZhongAn is moving insurance online, targeting all generations (especially the upcoming ones) with a major focus on travel, accident and health
– Avant is lowering the cost of borrowing money
– Sofi in the US is helping young professionals financially by offering student loan refinancing, mortgages, mortgage refinancing, and personal
loans, and is one of the few companies that takes employment history into account when considering loan applications
– Klarna from Sweden allows customers to pay for products after they have tried them out and have no problems – and at the same time, makes sure that the vendors are paid at time of purchase. Klarna’s idea seems to solve a pain point for many e-commerce customers who can be tricked into buying bad quality products.
– Zoona makes safe and reliable money transfers available to residents of South Africa.
– There are companies even on the top 10 that are completely new to the top 100 list this year.
– Several firms are targeting healthcare as a way to speed up insurance claims and control healthcare costs
– While Canada appears to have a relatively small market compared to other parts of the world, there are still 7 Canadian startups on the list: League, SecureKey, Grow, North Side Inc, Overbond and Wealthsimple. North Side Inc supports real-time dialogue between a virtualized personal banker and its users, making it a great source of information for customers who usually prefer to communicate face-to-face with a financial advisor. Overbond makes the bond market easily accessible, transparent and secure.

Remarkably, 92% of the top 100 are disrupting rather than enabling existing financial institutions, offering competitive, faster, easier and lower interest rate services to customers who are often underserved, especially those who have high credit risk or low income. In the U.S., banks have been providing low-cost services (e.g. chequing accounts) to attract customers to its more profitable products, such as loans. Fintech threatens to take away the banks’ profit share, forcing them to charge higher fees and drive low-income customers away.

On the other hand, in Canada, the fintech disruption does not seem to be making as much progress. First of all, the market is no longer seeing fintech as a flashy tech industry, and is instead valuing fintech as finance. As much as fintech makes a loan process understandable or faster, the value in the tech still lies in the quality of the loan book which is not always up to standard. Much focus is being placed on lending to customers that are too unpredictable or high-risk for investors’ tastes. Lending is an easy market to get into, however there is much competition and acquiring customers is costly. As a result, many fintech firms are partnering with banks and moving away from disruption. Still, there is much potential in Canada’s financial market, and entrepreneurs believe that it is one of the few Canadian industries where it is possible to create a multibillion-dollar business.

Fintech founders are people who have worked in banks and have a strong intuition as to what can be improved. They leave their old jobs to try to implement their ideas in a less restricted environment. Even then, there are barriers and hurdles to overcome before they reach success. First of all, fintech is more restricted than typical tech due to regulatory requirements that fintech products have to meet. For a startup, legal and licensing fees can be costly. When it comes to expanding globally, which is necessary for services like money transfers to gain scale, there are more regulations to meet. Also, fintech startups often do not have the money to invest in adequate security for their products, which is risky as more customers join their platforms. Though an large-scale attack or data breach has not yet happened, it is only a matter of time before it does. Consultants recommend that startups establish security protocols and procedures in the event of an attack. While fintech has been making substantial progress on innovation, it only has a sliver of market share compared to banks in developed nations. Finally, the current trend on open innovation where banks are funding fintech startups is admirable but lacks a clear sense of direction.

As a student in CFM, I am excited by the highly impactful ideas that are coming to life in fintech. At the same time, I personally am not someone with a lot of appetite for risk, so working at an innovation, fintech or accelerator department in a bank appeals to me more than starting my own company. A lot of fintech action seems to be happening outside Canada, so I will consider doing my final work term in China or California.

Going forward, I want to learn more about blockchain, crowdfunding and digi-currencies. I also get the sense that there is a lot more to learn about fintech markets, and that they differ by country and socio-economic status. I would like to try some of these products and find out what a ‘financial ecosystem’ looks like.

Now I pass the spotlight to you. Are you inspired by fintech? Does this article motivate you to take a different direction in your co-op terms?
Are you interested in learning more about fintech?

If so, feel free to read more at the links below. These were my sources:
Citibank’s plan to fight the fintech revolution
2016 Fintech 100
Banks are right to be afraid of the financial technology boom
The Fintech Boom and Bank Innovation
Fintech firms are battling banks—and the banks are winning – Canadian Business

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