Author(s): Raghu Gopal
FinTech, or financial technology, has made headlines in the past few days after becoming a hot term at the 2016 World Economic Forum in Switzerland. It describes the rise of start-ups looking to this decade's digital thinking to take on incumbent competitors like banks and insurance companies. Start-ups are taking a fresh look at financial services processes just as Airbnb and Uber reimagined the hotel and taxi industries, and FinTech firms stand to be another potential disruption in the making.
New financial technologies are transforming the way money is managed, from bank accounts to payments. Funding has been pouring into FinTech start-ups, but not all innovators are working out of garages — major companies such as Amazon, Apple, Facebook, Google and Samsung are also launching payment services.
The movement is being energized by consumer behaviour. Banking habits have been changing as users grow comfortable with conducting business on mobile devices and online, and the democratization of smartphone ownership in recent years has allowed the network effect to kick in. It's created an environment in which person-to-person money transfer services like Square Cash and Venmo can thrive.
However, FinTech start-ups face very different challenges to established banks, having to navigate through a complicated regulatory landscape that differs vastly from country to country while entrenched firms invest heavily in technology to bolster their own services. But there's little doubt that the industry is looking down the barrel of change. Technologies like blockchain and new initiatives from powerful digital players — such as Amazon, Apple, Google, Intuit and PayPal's recently formed Financial Innovation Now, which aims to "foster greater innovation in financial services" — almost guarantee that things will be different in a few years.