Finance is being revolutionised. Find out how, and why you need to know.
Innovation is alive and well in the financial services industry. This guide will take you through these innovations, how finance and technology were brought to a point where the "fintech" term came about, and what to know about the Australian fintech space.
What is fintech?
Simply, “fintech” refers to financial technology: any computerised system designed to deliver financial products and services. However, it's usually used to refer to new and innovative systems, rather than existing technology.
How did fintech evolve?
Following the Global Financial Crisis (GFC) of 2007, larger financial institutions shifted their focus to regulatory control and moving away from risky lending. Banks, more than ever, were unwilling to take risks in personal and business lending. Similarly, the volatile housing market meant that fewer people were able to offer security for new loans.
In the years following the GFC, while the financial world was still in recovery, people were seeing technological innovations in other areas such as telecommunications. Those changes weren't reflected in finance and millennials especially were not being catered to by their existing banks.
The demand for products that catered to a digitally aware population combined with a lack of supply from traditional banks and lenders created the opportunity for fintech startups to disrupt the market.
Startups such as Zopa, Prosper Funding Circle and Society One pioneered peer-to-peer (P2P) lending in 2005 and disrupted the way personal loans were funded and people invested.
While we had a slow start – it took seven years for P2P lending to make it down under – Australia quickly caught up and our fintech industry is now booming.
Does fintech cover all financial services?
“Fintech” is a blanket term that covers all financial services, There are more specific terms for particular sectors, for example, “insurtech”. Some areas of note include payment innovation, investing, foreign exchange, robo-advice, cryptocurrencies (bitcoin) and business finance.
What are some notable fintech companies and products?
|RateSetter||Peer-to-peer lender.||The better your credit history the lower your rate will be. You can also invest in its platform and earn competitive annual rates on your investment.|
|Acorns||Micro-investing platform.||An app that deducts spare change from your account based on the investment method you select. You can withdraw and deposit money as you like.|
|Trōv||Insurance app.||Described as “Tinder for insurance”, you can insure individual items such as your laptop or camera from your phone. Turn it on and off with a simple switch and claim with a message.|
|MoneyMe||Short term lender.||Winner of Startup of the Year at the 2016 Fintech Awards, MoneyMe offers short- or long-term cash solutions. Good credit and borrowing history brings down the loan costs.|
|OnDeck||Small business lender.||Offers innovative small business loans up to $150,000 with a one-day turnaround. Winners of Fintech-Bank Collaboration of the Year with Commbank at the Fintech Awards 2016.|
Fintech terminology you need to know
*source: Macquarie Dictionary
API: Stands for application programming interface. In very basic terms, software which allows different systems (such as fintech providers) to talk to each other. Essential for integrating different apps and for data analysis.
Big data: Enormous sets of information (such as every single transaction and search on Amazon.com), which can be mined for trends and used to make future predictions. Many fintech projects aim to utilise big data.
Bitcoin: The first and best-known digital currency.
Blockchain: a software system which provides a secure decentralised ledger for financial transactions, used by bitcoin and many other cryptocurrencies. Learn more in our detailed guide.
Crowdfunding: Pre-funding a product or service by seeking advance payments from prospective customers, through a service such as Kickstarter or GoFundMe. Some fintech services use a crowdfunding model, especially if they involve providing an actual physical product such as a card or smartphone case.
Cryptocurrency:Digital currencies such as bitcoin, which use encryption for protection.
Digital native: a person has up using online tools, has complete familiarity with them and prefers digital solutions to "real world" options.
Internet of things (IoT):The notion that every device in the world – whether that's an ATM, a fitness tracker or an automatic door – can collect and transmit information. Many big data projects draw information from IoT systems, and fintech platforms can use that data for better planning. .
SaaS (software as a service): Software where customers pay a set monthly or annual fee based on usage, rather than the more traditional model of an up-front fee plus maintenance. Many fintech projects operate on the SaaS model.
Sharing economy: Services which operate via shared access to goods and resources for a fee, rather than traditional ownership models. UberX, Airbnb and GoGet are well known examples.
Unicorn: A startup which has achieved a value of more than one billion US dollars. Every fintech wants to be a unicorn.