We live in a tech pop era where access to almost everything we require from day to day is available at the touch of a button. So, why should your finance needs be any different? Enter the fintech industry.
So what is fintech? And how can it benefit you?
Fintech is the term given to financial service firms whose product or service is built upon technology, often resulting in highly innovative, pioneering services. “Fintech” as a term is a compound of “finance” and “technology”. It is a relatively recent term and is certainly not a buzzword. Fintech is here to stay. Why? Put simply, fintech is changing finance as we know it and is already impacting how increasing numbers of individuals and businesses alike conduct their financial matters.
Fintech growth is seemingly unstoppable. Since 2008 global investment in the burgeoning fintech sector has tripled, from $928 million to $2.97 billion and is forecast to reach up to $8 billion by 2018. The UK and Ireland now account for over 50% of all European fintech investment. Venture capitalists around the world have diverted attention to fintech, mainly as the growth prospects of the sector are stratospheric.
London is the undisputed fintech capital of Europe. With Silicon Valley, London forms one of the globe’s two fintech capitals. Between 2008 and 2013 investment in UK fintech reached $700 million.
The investment growth percentage in London far outstrips its American counterpart, although the total amount is considerably less. The UK is now launching an initiative to position London as the main global hub for fintech, for which competition from Silicon Valley, Asia and New York will have present sizeable challenges.
However, London’s chances are good. The UK capital is the financial centre of the world, already Europe’s fintech capital, attracts a highly skilled and talented workforce to the capital. Even the events of Brexit haven’t slowed the powerhouse that is fintech.
Are banks worried? They certainly are. But their worry does not come from the market share fintechs have currently, as it is miniscule. The real worry comes from what fintechs could do to banks’ market share in the future. The fear is that mid- to long-term, ironically, banks could lose their own sector: banking or at the very least, a significant portion of it.
Banks are rapidly falling out of favour with society, on a global scale. Before they were a necessary evil and there were no alternatives when it came to lenders and financial services providers.
Currently, we are experiencing a far different dynamic; the high-street banks are feeling the heat from the fire being set by fintech businesses. A report by Capgemini found that 63% of customers that were using products and services by fintech companies are more likely to recommend them to friends, then products and services they used from traditional banks.
It is also forecast that despite the red-tape and regulation that the banking industry is shrouded in, young fintech start-ups are expected to capture more than 15% of banks revenue over the next decade.
In the aftermath of the global financial crisis between 2008 and 2009, banks had focused their time and effort on compliance and regulation, meaning that innovation was left at the bottom of the ‘to-do’ list.
Foreign exchange is one area where small fintech companies such as Indigo FX are challenging the banks. Indigo FX aims to offer far more competitive rates of exchange with a clear and transparent view on saving you the most when entering into cross boarder activity.
It was recently uncovered that one major bank had made €585 million from international money transfer, an amount that equalled almost a tenth of its global profit for 2016. A more precise breakdown reveals that €290 million was made from its FX margin – the difference between the mid-market rate and the exchange rate that a bank offers and a further €163 million was earned through its ‘standard fee’.
It then, should come as no surprise that small, more agile businesses have swooped in to drive innovation in this arena. On average, through using a small, more disruptive Forex business such as Indigo FX, a customer is offered up to 15% more than from a mainstream bank.
In the past, businesses have been limited in their choice of where to go to carry out a foreign exchange, and were forced to use banks. However now, the emerging forex businesses are challenging this norm and giving the banks a run for their money.
Indigo Pay, Indigo’s online solution is one way many businesses in the UK and Europe are utilising fintech. Indigo Pay gives our clients 24 hour access to the foreign exchange market giving them more control and transparency over their cross boarder payments. With new technology more options become available every day. Indigo will soon be looking at releasing a fully functioning app for our clients to stay on top of all their international payment activity with just a swipe and tap of a finger or thumb.
In conclusion, foreign exchange is going to continue to expand the landscape even further. Advancements in technology and the rise of blockchain are revolutionising. Not only in foreign exchange, but also by challenging the outdated processes that were formed in the dark ages of banking. We will enter an age of transparency and collaboration, and this will change the perception of banking entirely.