The financial technology (fintech) industry is thriving globally and received $17.4 billion in investment last year alone.
According to EY’s Fintech Adoption Index, a third of consumers worldwide are using two or more fintech services, with 84 percent of customers saying they are aware of fintech (up 22 percent from the previous year).
But users are often unaware that the financial services applications they use count as “fintech”, or may not know what exactly fintech and its accompanying jargon means.
What is Fintech?
Financial technology is broadly defined as any technological innovation in financial services. Those engaged in the industry develop new technologies to disrupt traditional financial markets. Various start-ups have been involved in the process of creating these new technologies, but many of the world’s top banks including HSBC and Credit Suisse have been developing their own fintech ideas as well. Fintech companies utilize technology as widely available as payment apps to more complex software applications such as artificial intelligence and big data.
In this Post, let’s try to understand what impact Fintech has on our Lives. I will try to keep out the Jargons and simplify as much as possible, so that it serves as a guide rather than a white paper.
State of Fintech in 2017
I have listed below some of the hot topics in Fintech buzzing currently. I will hopefully try to cover these topics in the future posts:
Initial Coin Offering
It’s also now easier than ever for small businesses to accept payments. Even Small farms in the middle of nowhere can accept credit and debit cards with tools like Square and PayPal. And while there are fees, the entrepreneur doesn’t have to do a particular volume of business to qualify for an account. Anyone, anywhere can safely and easily accept credit card payments, making it easier to do business.
FINTECH BY 2020
As per a report by pwc, 77% of the respondents expect to adapt blockchain as a part of the production system/process by 2020.
So, are you ready to adapt it?
Fintech in India
Payments and lending remain priorities in India. Fintech interest grew in
India during Q1’17, with Paytm attracting Asia’s largest funding round of
$200 million. Payments and lending drove investment during the quarter,
although interest in AI also increased. On the blockchain front, a number of banks formed consortia with fintechs to develop blockchain proof of
concepts. Interest in blockchain seems to have also increased in the
insurance space. Over the next quarter, insurtech is likely to come into its
own in India and the government is expected to release regulations for
fintech, particularly related to peer-to-peer lending, which could lead to
Caution with Bitcoins
As bitcoin prices skyrocket, it seems like everyone around wants to join the bandwagon, irrespective of the lack of understanding of the instrument and the risks involved. While the sharp rise in bitcoin prices may look attractive, you need to be careful while deciding to invest in them. To start with, do a thorough check while choosing the company from where you want to buy. No one wants to put money in something where they may get cheated. In the last couple of years, there have been multiple incidences of fake cryptocurrencies. Bitcoins or any other cryptocurrency in the form of
payment, check if the company has a history of making payments in this
manner and if your banker has an outlet to convert this into currency if required.
There are more than 600 crowdfunding platforms around the world, with fundraising reaching billions of dollars annually, according to the research firm Massolution.
How it works: The most common type of crowdfunding fundraising is using sites like Kickstarter and Indiegogo variety, where donations are sought in return for special rewards. That could mean free product or even a chance to be involved in designing the product or service.
It is also possible to use crowdfunding to assemble loans and royalty financing. The site LendingClub, for example, allows members to directly invest in and borrow from each other, with the claim that eliminating the banking middleman means “both sides can win” in the transactions. Royalty financing sites appear to be rarer, but the idea is to link business owners with investors who lend money for a guaranteed percentage of
revenues for whatever the business is selling. The Holy Grail is to sell company shares or ownership stakes in the company on crowdfunding sites, because it could be like a mini-IPO without the traditional hurdles.
Upside: Crowdfunding provides another strategy for startups or early stage companies ready to take it to the next level — such as rolling out a product or service. Before, a business owner was subject to the caprices of individual angel investors or bank loan officers. Now it is possible to pitch a business plan to the masses. A successful crowdfunding round not only provides your business with needed cash, but creates a base of customers
who feel as though they have a stake in the business’ success.
Downside: If you don’t have an engaging story to tell, then your crowdfunding bid could be a flop. Sites such as Kickstarter don’t collect money until a fundraising goal is reached, so that’s still a lot of wasted time that could have been spent doing other things to grow the business. It could be even worse if you meet your goal but then realize you underestimated how much money you needed. A business risks getting sued if it promises customers products or perks in return for donations, and then fails to deliver. There is also an argument to be made that angel investors and even bank officers provide more than just money. They provide entrepreneurs with needed advice. Business owners miss out on
such mentorship when they ignore traditional investors and turn to the
Tips for Successful Crowd Funding
- Have at least a small network of enthusiastic friends and family
willing to help get the ball rolling by giving and urging others to give.
- If you’re giving out perks in return for money, make sure the perks are cool.
- Present a serious business plan and an explanation of why the money will take your enterprise to the next level.
- Demonstrate that you have your own skin in the game because of
the personal funds you have already poured into the business.
- Include a video pitch and keep it short and concise, with a call to
- Be prepared to essentially live online, staying active on social
media sites, until the crowdfunding campaign is complete.
Crowd Funding Models:
The well-known models of Crowd Funding
are Donation, Reward, Equity (similar to IPO
of any company) and Peer to Peer Lending
(Borrowing from other than banks and