State of FinTech – The Future of Money, Visualised [Graphic]
FinTech – FinWhat?
The term FinTech may suggest that it’s technology from Finland, or maybe has something to do with dolphins, but FinTech is actually a portmanteau of the words financial and technology. It’s a new synergy — a budding industry of companies that utilise new technology to create new ways of handling and managing our finances, whether it’s banking, lending, investing, fundraising, billing, or creating an actual currency.
Here, then, are a few things you might want to know about the world of FinTech.
The below infographic is based on data and analysis from Venture Scanner, an analyst and technology powered startup research firm. To access the full dataset, visit: https://www.venturescanner.
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Names, Familiar and New
It’s a sector that’s still in its infancy, to be sure, but many financial experts are looking at FinTech companies to start making a significant impact on the global economy. In a June 2016 article, Information Age recapped April’s Innovate Finance Summit in London and lauded the explosion of FinTech companies, stating, “Overall, there seemed to be a genuine buzz at the conference that 2016 could be the year in which FinTech takes the world by storm.”
Some of the more active FinTech companies will have familiar-sounding names to even the least tech savvy consumer, especially when it comes to those in the payments category. For example, PayPal has been around since 1998, and according to Statista, the online payment platform currently has over 184 million active accounts throughout the world. Venmo is becoming increasingly popular among millennials as a way to split tabs, and more and more vendors are using Square to accept credit card payments.
And then there are other more well known FinTech companies, like crowdfunding sites Kickstarter and Indiegogo, lenders like Kabbage and Prosper, and personal finance company Credit Karma. Though for all the names that people recognise, there are at least four or five that aren’t heard all that often… yet. That could change very soon.
There are a handful of FinTech categories that the average consumer may not really think about, as they does not affect them directly, but they still hold a lot of sway. These include areas that are more directed toward banks and larger companies rather than individuals. For example, banking infrastructure and financial security are crucial to the success and safety of large banking institutions; consumer banking would be highly unstable without them, but they’re not products aimed directly at those consumers.
The same holds true for areas like retail and institutional investing, business finance tools, and financial research. These categories affect the businesses that serve customers, which in turn affects customers, but they’re not marketed toward the average individual.
As you can see, FinTech is an industry that’s remarkably large and all encompassing — and it’s just getting started.
Where’s the Growth?
Currently, there are more FinTech companies involved in consumer lending and personal finance management than in any other category. While it may seem like that’s the main direction of FinTech (and for now, it is), fewer companies in other FinTech areas actually leaves the door wide open for potential growth.
For example, consumer banking is relatively low in terms of number of companies right now, but it’s an area with tons of potential, especially as more and more people look to move their banking away from a more traditional brick and mortar institution and toward one that’s entirely based online.
The same holds true for banking infrastructure: as more longstanding banks look to move more and more of their operations online, they’ll need the the technological wherewithal to do so.
Look for these areas in particular to swell in the coming years.
The Big Data Behind it All
Of course, you can’t have FinTech without data — lots of data. We hear the term “big data” thrown around a lot these days, but when it comes to FinTech, the data behind it is crucial.
For starters, there’s a lot of highly sensitive information that’s being collected. But also, analyses of this data that are carefully carried out can reveal some insightful and helpful information about the financial habits of both consumers and institutions, as well as patterns of risk taking and their payoffs.
In a June 2016 article that was published on CNBC’s site, writer Bob Pisani is adamant about the growing role of big data analytics in the FinTech market. He also mentions the role of security, a category that is currently fairly low in terms of number of companies; as breaches of data become increasingly common, the need for more FinTech security will go way up.
US, UK, and China
If you want to know where the FinTech development is happening, well, it’s happening more or less where development in other tech sectors is happening.
Largely, it’s the US, the UK, and China, with Canada trailing close behind. Currently, the US is home to 756 FinTech companies, and the UK is second with 161. As for where the money is, again, the US has venture capitalist funding in FinTech to the tune of $13 billion USD; the UK is at $6 billion.
While this geographical distribution makes a lot of sense, again, there’s a lot of worldwide potential here. India and Russia both have their fair share of FinTech businesses and funding, and this may only increase as more and more individuals in Asia come online and find that they need tech-based financial products.
The same holds true for Africa, where only a few companies currently exist but demand has the potential to bloom.
Past Peak Founding and Funding?
Despite all the talk about growth in the FinTech sector, the numbers suggest that we may be past peak founding for companies. 2012 and 2013 were the big years for FinTech companies to be established; the numbers drop off noticeably for 2014 and 2015. Given this trend, should we be worried that FinTech is little more than a bubble?
In a word, no — and that’s for two reasons:
- As anyone who’s started a company knows all too well, it takes time for a new business to gain its footing in its respective industry; founding does not equate market readiness. Companies need a few years to get established, and if they were founded in 2012 or 2013, they’ve had those years. They’ve done their time in the new business incubator, and all the work that’s gone into their products and services should come to fruition right about now.
- The second, and perhaps more important reason, is that the funding trends don’t necessarily match the founding trends. 2012 and 2013 may have been peak years for founding, but when it comes to cold hard VC, 2015 was FinTech’s best year, with $12 billion USD raised. That’s up from $8 billion in 2014 and less than $4 billion in 2013. The first quarter of 2016 saw around $3 billion VC raised for FinTech, putting it on par with the high numbers of 2015. Clearly, things are heading in the right direction.
The Future of FinTech?
It’s hard to imagine the FinTech sector doing anything but growing by leaps and bounds. The consumer demand is there for tech-based financial products, the banking industry is following suit, and the use of FinTech peer to peer tools is increasing every day. The money is there, and the companies are responding well.
Data by Venture Scanner
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