Today, almost all of us perform payment transaction via apps on our smartphones. We don’t have to spend hours at the bank collecting a lot of paperwork to open an account or apply for a loan either. Fintech, which has become very popular especially in recent years, facilitates all these transactions. So, what should we understand from this concept? What do fintech startups do, what benefit do they focus on? In the following lines, you can find answers to many more questions like this.
What Is Fintech?
Fintech is an abbreviation of the words “Financial Technology”. If we briefly define this concept, we can say that it is the automation and restructuring of financial services as a result of the combination with new technologies. In this way, both companies and consumers are able to manage their financial transactions more easily. At the same time, this innovation stands out from traditional financial services with its low cost and high quality of service. When you say financial services, although banking comes to mind first, in addition to this insurance and other brokerage services are included in them.
Financial Technologies, whose main characteristics we can summarize as flexibility, speed and individuality, include transactions such as money transfer and payments, investment management, as well as the use of cryptocurrencies such as Bitcoin. Besides, the issue of trust is considered as a major obstacle to fintech’s adoption. Because consumers do not lean towards the companies’ data sharing offer, but also worry about the possibility of sharing their information with industry-independent organizations.
The Emergence of Fintech
The 2008 global economic crisis caused major changes in the financial sector and leads to a number of changes in this area. In this process, many new arrangements were made with the intensity of customer protection and transparency principles. When the development of mobile devices and the change in customer behavior were added to this, the developments in the field of digital finance came along. Thus, after the crisis, the concept of Fintech emerged in the same year. Initially, this was used in the server application systems of banks and brokerage organizations, later on, it shifted its focus to the consumer, moving from B2B to B2C. Currently, there are startups that have both been adopted.
What Kind of Ecosystem Does Fintech Have?
We can explain the main elements of the Fintech ecosystem in general as follows:
Fintech startups aim to provide innovative solutions to the financial sector based on new technologies. While these stand out with more transparent and personalized services by focusing on the needs of consumers; It is also preferred by SMEs due to its low cost and quality service. According to the 2019 EY Global FinTech Adoption Report, it is estimated that the global usage rate of SMEs will reach 64% from 25%.
Commercial regulations of a government agency can affect the ecosystem positively or negatively. For example, reducing taxes or simplifying regulations will have a positive impact, while strict implementation decisions will undoubtedly have a negative impact. Therefore, we can say that the state plays an important role in promoting these startups.
In the beginning, perceived as a threat to traditional financial institutions, this innovation eventually came to be seen as an opportunity. As in all areas, the companies anticipating that those who do not renew themselves will succumb to time, prefer to collaborate with these startups. In this way, it can produce new services that are lower in cost and have a high competitive value. Particularly, this is a realistic answer to the question, “Does Fintech pose a threat to traditional companies?”
Financial customers are at a very important point in the ecosystem. Because, as mentioned above, they are the focus of these startups. Companies that increase the success rate in the industry by developing personalized services for the customer needs also gain new customers.
Technology developers are creating new solutions for the sector by benefiting from new technologies such as artificial intelligence, cloud computing, APIs, blockchain, big data and IoT within this system. In this way, for instance, our refrigerator can buy groceries itself and transfer money with mobile payment.
Its Situation in the World and Turkey
This rapidly growing market in the world is expected to reach approximately 305 billion dollars by 2025. While North America holds the largest market, the Asia Pacific is the fastest expanding market. Big brands such as Google and Intel have been investing significant amounts in the field, awaring of its importance from the early years.
Some examples from around the world include Ant Financial, a venture of Alibaba Group; Adyen, based in the Netherlands, with a strong client portfolio such as Netflix, Spotify and Microsoft; Xero, based in New Zealand, one of the fastest-growing SaaS companies.
In Turkey, interest in this area is growing both from the financial sector and from different areas. The fact that a total of 94 startups received 102 million dollars in investments in 2019 also confirms this. Following Iyzico, which was included in the 2017 Fintech 100 list announced by KPMG and H2 Ventures, two Turkish startups, MenaPay and Papara made their marks on this list in 2019. Fintech Istanbul stands out as a platform that animate the field of financial technology by bringing together startup founder candidates and professionals who will support them.
What Benefit Do Fintech Startups Focus On?
Providing innovative solutions to the financial sector using new technologies, these startups are mainly based on the goal of “facilitating financial processes”. With a fully customer-oriented approach, on the one hand, improving the existing terms of service, they allow consumers to perform their transactions practically and quickly and on the other hand, they create new solutions for consumers who cannot access traditional banking services.
While about 2 billion people in the world do not have bank accounts, these people have the opportunity to benefit from digital finance services with Fintech. An example of this is the M-Pesa mobile banking app that is used in an estimated 96% of households in Kenya. Thanks to this application, transactions such as taking out loans from the bank, paying bills or transferring money can be easily done by just using the phone.
We can clearly say that all the advantages of Fintech, such as reducing transaction processes, saving costs and time; making financial services accessible to everyone with a phone and internet; providing more effective and automated financial management by making personalized recommendations to the consumer, are actually aimed at facilitating these processes. Apart from this, in particular, blockchain technology seems to accelerate the development and the spread of Fintech by filling the gap in this area in terms of data security.