When Financial Technology (FinTech) first started to have an impact on our lives, the tech was mainly used to power the back-end of financial institutions and banks – think ATM’s as an example. However, as the capabilities have advanced, modern-day FinTech is customer focused and has completely revolutionised the way we deal with money.
It was Monday September 15th 2008 when finance giant Lehman Brothers filed for bankruptcy and kicked off one of the toughest financial crises the world has ever seen. Many people were losing jobs and homes but additionally, everyone was losing faith in the institutions which were meant to offer us financial support. That is when FinTech took centre stage.
When it started out, FinTech was thriving in the startups which were born to shake up the way big banks did business, but that has now evolved and that those same banks are adopting the tech to provide a first-class consumer focused experience.
Many existing financial institutions and banks began adopting technology by trialing digital offerings in areas where they had more capacity for risk, such as in non-core businesses or geographical areas. Retail banks have been the leaders in adopting these innovations in the US. Wells Fargo is one example. They added a predictive feature which analyses account information and customer actions to produce customised financial guidance.
As such, partnerships between financial institutions and FinTechs may prove to be a good way to combine and synergise their respective strengths. However, FinTechs in Australia are finding it difficult to initiate these partnerships. The Hayne Royal Commission found that half of the FinTechs surveyed selected ‘building partnerships with banks and other financial institutions’ as their main challenge. Start-ups are disadvantaged by legacy structures and the demand for evidence of results and prior success in implementation.
Despite these barriers, FinTechs in Australia have the benefit of a customer base which welcomes innovation in financial service offerings. Furthermore, the Australian government aims to create a business environment where Australian FinTechs can be globally competitive and play a central role in the ‘positive transformation’ of the economy.
The below are a few examples of key financial categories to emerge through the development of FinTech.
- Digital banks or neobanks operate digitally, usually from an app. For eg. Up Bank or Xinja. This sector has also moved into insurance and lending with companies like Zuper Insurance and Athena Home Loans cutting out the middle-man and passing on the savings to consumers.
- Peer-to-peer lending; this type of lending brings together people who want to borrow money and individuals or companies who want to invest. For eg RateSetter.
- Cryptocurrency; this currency is not government regulated and only exists digitally. An eg is CoinSpot.
- Digital wallets; using near field communication (NFC) technology, contactless payments connect smart devices with banks. A well known leader in the space is Apple Pay.
- Robo advice; using Artificial Intelligence to help you manage an investment profile of exchange traded funds (EFTs) some popular eg include Stake or Raiz. And also to help you manage your personal finance for eg PocketBook.
To read about 8 FinTech movers and shakers to keep your eye on in 2019 here>> 8 FinTechs distributing the finance industry.