THE UK FinTech sector is accelerating rapidly with the sector generating £6.6bn revenue in 2015. Is this economic growth a genuine cause for excitement or is it just a matter of time before the flame lighting this hot streak fades into obscurity?
Companies continue to develop the industry through innovative ideas providing a wide variety of cost-effective services to customers and increasing efficiency and flexibility within the financial business.
Billions of capital continues to be pumped into the FinTech phenomenon with its soaring popularity an attractive proposition to investors. This is evident from the Innovate Finance 2020 Summit 2016 held in April where over 1400 people attended, including many power global leaders, technological experts and data analysts celebrating this new era of finance.
FinTech start-ups are demonstrating that momentum is firmly with them; the speed with which they can develop in comparison to the world’s leading organisations is remarkable. The prolonged success of companies such as OnDeck (small company lending) and TransferGo (transfer of funds) is testimony to this ascendancy.
Concepts are moving with the digital age and adapting to the needs of customers through pioneering technological advances. FinTech visionaries are trying to remove the middle-man or intermediary and question conventional corporations who are less comfortable with software. Economic secretary to the Treasury, Harriett Baldwin elucidated the methodology even further: "In other words, it's all about making processes simpler and life easier."
Away from its prosperity and magnetism, just how sustainable is FinTech? In the UK at least, the past few years have seen a large injection of investment, but doubts remain about the future of the sector with discussions surrounding the model claiming it to be overhyped and a question of when and not if its bubble bursts.
However, managing director of CommerzVentures, Patrick Meisberger said there is "no bubble" subsiding, but the warning signs are there as valuations rise to stratospheric levels and antagonism increasingly intensifies.
"In this phase where people are getting a bit more careful, funding rounds will take longer and some will fall apart, but in the end the good comps will still get funding – there is no need to panic,: asserted Meisberger.
There is a fear that FinTech may interfere too heavily with traditional business models, even though it provides a flexible and alternative crossing point for customers and businesses. Financial services will always be in popular demand providing the worldwide economy is flourishing. Sending money, storing it, spending it, securing it - the functions are endless.
Despite all that they have to offer, FinTech businesses still trail banks in terms of their market dominance even though the disparity is becoming less and less each year - in October 2015, it was reported that 35 per cent of the UK population had used a FinTech product.
Taking into consideration the speed with which the technological revolution and digital interference overwhelmed traditional industries, it seems outlandish for professional services giant Deloitte to recommend that it is unlikely that FinTech companies will have more than 6% of the market by 2025. Save for Santander UK, most banks are unhurried in their approach to utilising financial technology. Because of this they are being caught up by FinTech companies who must now be considered as serious rivals. Banks continue to use their supremacy to command high remittance fees and long-winded transaction times, but ultimately they will need to look into forming partnerships allowing them to apply FinTech services into their systems.
The technological landscape continues to progress as does the attitude towards money and the handling of it. Is it realistic to think that in the future our planet will be restricted to mobile and cashless payments as our inclination moves away from using cash frequently, if at all?
For a long period, the intent of FinTech has been to deliver speedy transactions at a reduced cost for the back and middle office of financial institutions, while the office facade develops relationships with clients and remain very much person-driven. Daumantas Dvilinskas - the CEO of high-growth international online money transfer company TransferGo maintains FinTech businesses are moving away from offering a wealth of services and instead are providing precise dispensation specific to the customer. “I see a change in that: from offering many to many to offering one service to a very specific niche and really focusing on providing superior product experience in that niche,” he exclaimed.
What FinTech has captured is a growing trend and grasped the current habitual climate around how we access and use money. It is going against the conformist who follows regulations which relies on banks developing their services and providing customers with an option not in place during its fabrication.
In today’s society, it is customers who require flexible models to correspond with the fast pace of life – suitably tailored for the constantly changing needs of individuals and organisations.
The digital platform continues to advance with it now possible to take a loan from Paypal or get inventory financing from Amazon – further substantiation that FinTech is identifying ways to boost core financial communications and enhance the customer experience.
Dvilinskas believes that FinTech is going to continue shaping the landscape of the financial sector: He said: “My vision is that there’s going to be a lot of value for the consumer out of finance and FinTech going forward because of this change.” Long-term it is difficult to gauge how much potential there is for further growth, but there is no doubt FinTech will continue to make a significant impact on the industry – watch this space. µ
This article was written by John McGill of Blueclaw Ltd