The fintech revolution
The growing innovation in financial technology services has coined a term for what appears to be one of the key sectors in the future: the fintech or 'financial technology'. In recent years, companies have emerged that offer services such as payments, loans or insurance where the absence of a physical space and technological support are the main characteristics. Understanding innovation fintech It is an interesting approach to the future of economic relations in the digital age.
Just ten years ago, Steve Jobs presented the first version of the iPhone in San Francisco. In his speech he stated that, “Every once in a while, a revolutionary product comes along that changes everything”. He was right. Apple became the pioneer of a new device, the smartphone, which would completely change the ways in which we interact with our environment. The new smartphone offered three innovative features in its confluence: it was simultaneously a music playback device, a mobile phone with a unique user experience and a portable Internet browsing device. With successive improvements and new services, in less than ten years the smartphones They have become an everyday element in our lives and facilitate a wide variety of technological products and services in our daily lives.
The latest versions of the iPhone allow you to make payments via phone in the same way as with a contactless card. Today, with any smartphone It is possible to buy a plane ticket and use the same screen as a ticket when boarding. TomTom and Garmin are names that seem far away now; Google has monopolised GPS technology with its Maps application. And even intercontinental telephone conversations hardly affect the bill anymore, since WhatsApp, Skype or Hangouts allow them to be made free of charge.
The impact that technology has had and will continue to have on our lives is enormous. Psychologists are already beginning to address technological addictions, a symptom that the habits of our societies are changing substantially. Entire industries are undergoing transformation processes to adapt to this new technological era, while we are seeing the emergence of new ones. One of them is the sector fintech, “computer programs and other technologies used to support or provide banking and financial services”Our financial habits and the way we access financial products such as a bank account or a mortgage are also being affected by technology, creating an uncertain and highly competitive panorama where the position of traditional providers, such as large banks or insurance companies, is at risk.
Companies in the sector fintech They provide services in four main areas: financing, fund management, payments and other services (insurance, infrastructure, etc.). Activities such as crowdfunding or the crowdlending —microfinance and microloans, respectively— are activities that have experienced significant growth in recent years. But beyond financing, the fintech is beginning to change and disrupt traditional economic sectors and activities at a dizzying pace that began only a couple of decades ago.
From PayPal to Stripe
Just 20 years ago, something as simple as buying clothes online was a real odyssey. The use of the Internet had only just begun to spread to the average citizen and there were no payment methods sophisticated enough to allow purchases on-line on a regular basis. Until PayPal came along. Co-founded by Elon Musk, this startup is perhaps the first fintech which achieved not only considerable success, but also a decisive impact in its respective sector. In its first year of life, achieved a growth rate of 10% daily and more than five million new customers; In 2002, two years after its founding, the company went public, where it would grow by 55% during the first year.
PayPal offered a secure and fully-secured online payment service that allowed small and large merchants to replace checks and discounts and accept payments from online buyers. All it took was an account and a small fee to make payments in numerous countries, currencies and for a multitude of products. PayPal's potential was so great that the leading online retailer at the time, eBay, did not hesitate to buy it just a few months after going public. In this way, the largest digital marketplace was combined with the most innovative and fastest-growing payment provider. The result completely changed the way payments are processed. Today, it is no longer difficult to buy products online, whether national or international. The technological, currency, space and time barriers have been overcome with technological innovation in the payment industry. PayPal was not only followed by numerous alternatives and competitors, but the sector has continued to innovate and produce new payment facilities for consumers through technology, such as contactless cards or payment via PayPal. smartphone.
PayPal continued to expand its services with subsidiaries such as PayPal Credit, which gives six month loans, and offering financing to pay for expensive university studies in the United StatesHowever, with the expansion and normalization of payments on-line, numerous competitors began to appear. One of them, Stripe, founded in 2011, quickly became a viable alternative to PayPal. With slightly lower fees, a focus on small and medium-sized competitors, and notable clients such as Amazon, Google, Microsoft, and Facebook, Stripe managed to steal market share from PayPal and gain a foothold in the payments sector. on-line.
Interestingly, the vanguard of this sector is not in Silicon Valley, where both PayPal and Stripe emerged, but in China, where WeChat Pay and Alipay—controlled by giants Tencent and Alibaba, respectively—are revolutionizing payments. In a country where international credit cards, such as Visa and Mastercard, They never became established due to their high costs and difficulties for small traders. And in the absence of local providers, these new payment methods that only require a mobile phone are gradually causing cash to disappear from Chinese stores and Even street musicians process payments through these appsThe success and growth of what was once a startup has led Ant Financial, the parent company of Alipay, to have a market valuation higher than Goldman Sachs or Santander bank.
In search of the Amazon of banking
In recent years, the industry fintech has only grown. Half of consumers use services fintech payment and money transfer —13% of them, more than five different services- and The vast majority of financial companies believe that their business model is in danger due to the technological innovation and disruption of these new companies. The financial sector, characterized by its volatility and high risk of operations, is in a state of uncertainty about the effect that technological impact may have in the future. Technology has already demonstrated that it can transform economic activities and business models from top to bottom. In 2017, for the first time in history, advertising on-line surpassed the television, with Facebook and Google taking up the 73% of that advertising. In the United States, Uber and Lyft account for 70.5% of the transportation market share versus 6% for taxis.
Despite the success and remarkable growth of the companies fintech, its numbers still do not match the traditional economy. Stripe's own website reminds us that Approximately only 31% of world trade is conducted on the Internet. Only about 26 million people – the equivalent of the population of Madagascar – They use cryptocurrencies like the bitcoin and, while in the first six months of 2018 $57.9 billion was invested in companies fintech, a single bank, JPMorgan Chase, invested 9.5 billion in its technological strategy in 2016 alone.
This does not prevent us from concluding that the traditional financial sector is safe from the wave. fintechThe danger lies not in the growth or financing of these new companies, but in the way in which they are able to change the consumption habits and access to financial products of the average citizen. Precisely, the strategy that most of the have followed fintech is to focus on the user experience as a distinctive factor, whether through simple application designs, non-traditional methods of communication with the client, such as private messages, or easy and fast access to products such as credits, loans or payments. The message that most of these companies want to convey is that of an alternative to traditional providers, whether they are banks, insurance companies or financial companies.
A good example of this is Oscar, a New York company founded in 2012 with the aim of changing the way healthcare services are provided in the United States. Its founders saw that, in American health coverage, which is mostly provided through private insurers, consumers are in a situation of almost helplessness and without real access to information. Their bet consisted of filling this gap through technology, complementing traditional health insurance with the possibility of controlling all aspects related to health from the screen of their mobile phone. With their application, the consumer can not only see the results of the last analysis or manage their appointment with the doctor, but can also receive health advice in real time from a team of advisors. This revolutionary model in a highly competitive sector in the United States has borne fruit: in March 2018, Oscar closed a new round of financing of 165 million dollars.
To expand: “Doctors on Wall Street: The American Health System”, Adrian Albiac in The World Order, 2017
In Spain, Bnext seeks to become an alternative to traditional banking by prioritizing user experience. This emerging company, which came onto the market in 2017 after a round of financing via crowdfunding, offers a bank-less account where users can load money onto a card and withdraw it or make payments anywhere in the world without fees, as well as other financial products, such as microloans, investment in funds or guarantees in a simple and secure way. Users can communicate via chat at any time with the company and also connect their traditional bank accounts to the application.
Many other companies are seeking to offer innovative solutions to financial problems through technology. The German Kreditech offers loans to people without a credit history by analyzing their data on-line to determine your creditworthiness. For those who dare with the blockchain, Celsius offers loans in dollars through this technology, which allows knowing the complete transaction history of a person. The Chilean Übank has developed an innovative savings and financing model by deducting a certain amount each time an everyday activity is carried out and allocating it to a fund reserved for the activity in question. In practice, it is not just about the ability to innovate in financial solutions with technology, but about finding a market niche and being able to exploit it, something that is becoming increasingly complicated for fintech.
Banks fight back
In 2015, in its annual letter to JPMorgan shareholders, its CEO warned that Silicon Valley was coming to the banking and financial sector. Most executives in the sector agree that their business model is at risk due to the emergence of fintechHowever, it seems that the strategy that traditional banks and financial institutions have begun to follow is not to close themselves off and survive the wave, but to jump on this technological train and try to win the race.
A good example of this is one of the latest initiatives of the Santander bank, which has become the first to offer an international transfer service via blockchain. This new service, which aims to compete with fintech Like TransferWise, it allows you to make international transfers much more quickly, in just a couple of days, and to know the exact amount that the recipient will receive with the currency exchange. TransferWise, the main one fintech international money transfers, had created a very consumer-oriented strategy, with low fees and the possibility of knowing before making the transfer how much money the recipient would receive.
BBVA, for its part, has launched A consumer-centric digital transformation strategy, although with the focus more on the possible emergence of giants like Google or Amazon in banking. This bank wants to get closer to the model of the fintech digitizing most services and reducing the activities and operation of branches without losing the guarantees of privacy, security and compliance with financial and banking regulations. This last aspect has been highlighted by the same entity by suggesting that the same standards of consumer protection and supervision by regulatory agents are required for fintech that traditional financial institutions.
The JPMorgan executive highlighted how effective the fintech in providing services such as quick loans or instant money transfers and pledged to work hard to improve their services and compete with them and even to collaborate together “when it makes sense”. This seems to broadly sum up the banks’ strategy: 56% of financial institutions have placed disruption at the heart of their strategy and 82% expect to increase their collaboration agreements with companies fintech in the next five years.
It is still too early to say whether our financial product consumption habits will change completely in the coming years, but the truth is that companies fintech They have been able to identify new mechanisms to operate with them in a much easier and more inclusive way for the consumer, something that has put traditional financial institutions in check and in the midst of a process of reflection. If 20 years ago buying an international product online seemed almost impossible, it will be interesting to see what we will be able to do in 20 more years of innovation and technological disruption.
