Let me start the tale of FinTech with a movie reference. Remember 2015’s film The Big Short describing the reasons and consequences of 2008 financial crisis? It was great. Though oversimplified for entertaining purposes, it surely conveyed a truthful message: the meltdown of 2008 has eroded seemingly inviolable foundations of finance world for good.

People’s distrust of all things traditional banking, which followed the crisis, contributed a lot to the explosion of FinTech – a way to deal with money circumventing established financial institutions.

FinTech is crucial, but still new. Its definition hasn’t made it to most dictionaries and common lexicon yet. That’s why not many – even among tech and finance savvy people – realize just how great a potential it presents; and that’s why we feel the need to post today’s article – a brief overview of FinTech history, its current state and prospects for the future.

Strap in!

So, How did FinTech Come About?


The term FinTech stands for Financial Technology. We understand it, nowadays, as an adoption of newest software solutions for financial services, but it originally had a broader meaning; it referred to all sorts of interactions between technology and finance. Thus, the first significant point in FinTech’s biography, according to NY Times, is 1866, when Giovanni Caselli’s invention pantelegraph was used for a financial operation between Paris and Lyon – the moment considered by many a turning point in economic globalization.

Today’s FinTech, however, started booming in 2008, after the world financial crisis. The public, frightened by frauds of banks (and governments for that matter who bailed these banks out) strived to distance themselves from centralized financial institutions. That’s where IT solutions came handy – multiple financial sector startups appeared immediately after the crash, proposing services to people that were simple, fast and, most importantly, independent from banks. Therefore, the so called FinTech revolution had not so much to do with the implementation of technology for financial services, as with who provided these services.

Who’s Behind FinTech?


Prior to the economic meltdown, financial institutes and technology were all but inseparable. It was banks who invested the most in financial software development, eager to apply technology across their large-scale operations.

However, when things took a wrong turn in 2008 and 8.7 million of Americans lost their jobs not just the general public was affected. Lots of finance experts were let go too; either that or they became significantly less paid.

FinTech industry became a new chance for them to apply their skills and get compensated fairly.

Therefore, we can list three types of people – Silicon Valley guys, educated bank employees who found themselves under-utilized after economy had failed, and a new generation of skilled, tech-savvy graduates – who are currently breathing life into the FinTech industry.

What Does Fintech Mean for Businesses?


Nowadays, FinTech market consists mostly of startups that aim to disrupt established financial systems along with large corporations that don’t implement software heavily. Backed enthusiastically by VCs – after raising the total of $19 billion in 2015, FinTech startups hit astounding 15 billion in investments by Q3 of 2016 – they’re expected to reshape the very way we manage money. Both businesses and people individually.

Thanks to FinTech, small and big companies can avoid visiting local banks and investors to manage their funds. New, simpler and much more exciting options are at their disposal – crowdfunding, mobile payments, apps that provide investment advice to name a few.

FinTech and business is a marriage made in heaven, and a vivid proof of that is Kickstarter, a crowdfunding platform which, among others, gave birth to such projects:

  • Pebble Watch (raised over $10 million)
  • Ouya (raised $8.5 million)
  • Elevation Dock (raised nearly $1.5 million)

Another aspect of business that’s been changed forever by FinTech is money transferring – a matter so bothersome historically for entrepreneurs around the world. The company named TransferWise sends funds abroad for a fee 8 times less than that of an average bank. Hard to imagine something more vital for international commerce.

How Many FinTech Categories are There?


As we’ve mentioned earlier, there isn’t a universal understanding as to what counts as FinTech. Some say it includes all interactions between finance and technology, others consider the industry just a collection of disruptive, financial sector startups. The authorative Venture Scanner, however, names 16 main FinTech categories:

  1. Banking Infrastructure
  2. Business Lending
  3. Consumer and Commercial Banking
  4. Consumer Lending
  5. Consumer Payments
  6. Crowdfunding
  7. Equity Financing
  8. Financial Research and Data
  9. Financial Transaction Security
  10. Institutional Investing
  11. International Money Transfer
  12. Payments Backend and Infrastructure
  13. Personal Finance
  14. Point of Sale Payments
  15. Retail Investing
  16. Small and Medium Business Tools

Of these categories, Consumer Lending appears to be the most interesting for VCs – it has raised $16 billion in funding as of Q4 of 2016. Payment Backend ($10,5 billion) and Business Lending ($9,8 billion) took the second and third places respectively.

How does FinTech Future Look?


In the light of current geopolitical turbulence many wonder if FinTech will remain a high-performing industry in 2017. The answer, according to field leaders, is basically “very much so”.

Here are some notable predictions for FinTech of 2017:

Paragon CEO, Jim Perry, thinks that the ever-growing presence of real-time payment solutions will require more testing services to be built customly, to check their complex code. Development in this direction, he says, will become a significant part of 2017’s FinTech.

Managing Director of Bottomline Technologies, Nigel Savory, states that both customers and businesses in North America and Europe will largely apply real-payments systems in the year to come, as these solutions are much easier to use than cards and are constantly available. He notes also that the upcoming real-time payment initiatives of SEPA and The Clearing House will add to that trend too.

PwC’s Henri Arslanian expects China, which is already leading FinTech B2C branch in many ways, to conquer the industry completely. Its money market fund, Yu’e Bao, which is now third biggest one in the world, and ZhongAn, an online insurance company with more than 350 million clients, are evidence to him that China’s triumph is inevitable.

Summing Up

There is no escaping the drastic technology improvement, no stopping web applications from reshaping our lives completely. Just think, 2017 promises us the cars that pay toll money by themselves, without you having to touch your wallet, the Refrigerators that automatically order groceries from Freshdirect, and much much more.

Groundbreaking, technology based businesses continue to appear and none of them can exist without funds. FinTech makes dealing with these funds simpler, safer and more efficient. Therefore, it’ll surely stay as relevant and as popular an industry in 2017 and many years afterwards.

At Perfectial, we recognize emerging trends and the importance of FinTech. Plenty of our clients are either FinTech startups founded to disrupt the financial markets or financial institutions struggling to stay competitive in the age of innovation. Our solutions help to achieve both of these purposes.

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