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Traditional financial institutions have been operating for a long time now, and conduct their operations within a large, intricate ecosystem. This has served as a strong foundation for the emergence of fintech; an emerging industry which seeks to improve the financial sector through technology – solving financial problems for customers more efficiently, cheaply and quickly.
Fintech has been used to bring more automation to areas such as risk management, trading, banking, insurance and investments. Dynamic, new online trading platforms allow investors to make trades from the comfort of their home using a tablet or mobile device, in real-time. Robo advisers have increasingly democratised the financial advice sector, offering automated advice and model portfolios based on the software’s assessment of the customer.
In this article, our investment team here at Bure Valley Group reflect on how the fintech industry is performing in 2020, how it got here and what the outlook ahead may b. To find out more about our own EIS and other investment opportunities, visit our portfolio page here. To enquire about our latest projects and funding, you can reach us via:
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Fintech: the journey to 2020
It isn’t easy to pinpoint exactly what fintech is. After all, mainstream banks have long leveraged new technological innovations to improve their services (e.g. mobile internet banking). Yet a good starting point is to identify any company whose business model relies on providing its financial services through software.
This helps to distinguish a fintech startup – such as a cryptocurrency trading platform – with a high street bank. With the latter, a customer can walk into a nearby branch to open an account, start a mortgage or take out a loan. With the former, the consumer may never meet any of the people behind the software they might use on a daily basis. Support issue might be dealt with through an online chat function on the platform or website, and even this may be automated.
Fintech has naturally evolved with the internet and digital technologies. The introduction of Google Play in 2008, for instance, was pivotal in opening up the app market on mobile devices, allowing fintech firms to stamp their presence on such device through app downloads. In 2020, for instance, the investment and trading app Robinhood relies heavily on this approach to gain new customers. Without the global growth of the mobile device and app markets, such fintech platforms would struggle to exist. Yet their existence (and likely continuation over the coming years) helps to explain the popularity of fintech. Never before has it been easier for people to access financial services and information, wherever they are. Today, people can pay for food, manage funds and sort out their insurance – with the few button taps and an internet connection.
The outlook for fintech
Despite the economic and market disruption caused by COVID-19 so far in 2020, there is still much potential across the world for the development of fintech. According to Prosper, people use 1-3 apps on average to manage their finances, and there is considerable scope for this to grow. With 1.7bn people across the globe currently without a bank account, and with many fintech solutions offering a cheaper service to people in less developed countries, the potential is certainly there for such companies to fill a much-needed gap, generating strong profits and returns for investors along the way. Investment in fintech continues to grow for this reason. In 2017, fintech investment soared up 18% and, in 2020, Asia appears to be a crucial stating ground for further growth as many countries’ middle classes continue to grow.
Types of fintech to watch
So, with so much innovation going on in the fintech world, which developments should investors be watching out for? Here are some suggestions from our team at Bure Valley Group:
- Regtech. This refers to companies which are involved in the automated management of regulatory processes. These are likely to grow in prominence in 2020 as businesses seek assistance with compliance.
- Artificial Intelligence. AI, of course, already lies at the centre of many fintech platforms. Yet the technology continues to improve, and in 2020 this will plausibly lead to helping companies make better decisions about data and the automation of workflows.
- Robo-Advising and Stock-Trading. New services are still emerging to offer online portfolio management algorithm-based asset recommendations. These tend to come at greater efficiency and lower cost, compared to a traditional financial adviser (who may only be concerned with wealthier clients).
- Mobile Payments. The global mobile payment market surpassed $1 trillion in 2019, with little sign of slowing in 2020. Almost everyone has access to a smartphone now which can accommodate this kind of fintech, including may developing countries. New players are now in the game, including Apple Pay and Alipay.
- Insurance. This is also sometimes called insurtech, and it continues to bring significant disruption to the traditional insurance industry. Credit Karma was valued at $4 billion in 2019, and Oscar Health secured $165 million in funding in March 2018. Watch this space.
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