Is the fintech revolution here to stay?

Financial technology, or fintech for short, is the term that describes any kind of software or other technology in the financial services sector. It’s a broad term, covering solutions used by corporations as well as consumers. Fintech could be anything from mobile payment apps to stock trading to cryptocurrency wallets. If it uses tech to help manage money, it’s fintech.

Fintech has been a growth sector in the tech economy for several years now, adored by business, customers and investors alike. But can the fintech industry continue to disrupt, or will the traditional finance world reassert itself?

Why fintech?

Fintech plays in the gap between what today’s connected generation of consumers want and what the traditional financial services industry are prepared to give them. At the turn of the century, managing your money was laborious. Consumers would frequently have to go to banks in person, join queues and talk to managers who probably didn’t want to talk to them. Banks charged high commissions and restricted what you could do with your own money. Today’s consumers, especially millennials, will not stand for that. They want to manage their money online, on their mobile if possible, with instant results. The banks were slow to allow this, so fintech stepped into the breach.

Fintech’s success stories all won because they gave the modern customer something new and convenient. Here are some examples:

• Monzo – a bank that exists entirely within an app. Monzo currently boasts over 4 million account holders.
• Revolut – makes sending money easy and cost-effective, even between currencies. In 2019, it announced its 8 millionth customer.
• Atom Bank – A mobile bank that also offers mortgages. The first online bank to be granted a full regulatory license in the UK.

The UK is a global centre of fintech. Last year, more than 75,000 people were working in the sector, with salaries rising and more vacancies being created every year.

Obstacles to further growth

Of course, the traditional financial services sector is not going to let fintech come from nowhere and take all their business; not without a fight anyway. Banks have realised that it is time to act before their customer base deserts them. Today, all banks have mobile apps where customers can check their balance and send payments. They have also tried to update their services, making their branches more welcoming and efficient. However, traditional banking giants move slowly and they need to do far more to stave off the smaller, nimbler fintech entrants.

On the other hand, there is a view that the fintech startups and scale-ups could be the architects of their own downfall. The way fintech firms are run, pursuing growth at all costs, is unsustainable in the long-term. Last year, Revolut made the news when stories of its unconventional workplace culture came out into the open. These stories included people applying for jobs being made to work for free to prove themselves, weekend working being mandatory and an exceptionally high turnover of staff. While this may be the exception, fintech firms need to strike a balance – you cannot achieve a high level of growth for a prolonged period of time if you don’t keep hold of your staff.

What’s next?

That aside, there is every reason to believe that the fintech revolution is indeed here to stay.

There is an almost countless number of startups emerging in all areas of the fintech sector, from all across the world. Here are three that are poised to join the list of household names.

• Robinhood – based in California, the Robinhood app offers commission-free investing in stocks and shares and aims to make investing accessible to all.
• eToro – eToro is a social trading platform where investors can put their money into stocks, shares and cryptocurrencies, as well as following successful traders’ portfolios.
• Thought Machine – a B2B fintech firm, creating the infrastructure for banks and financial services companies to build their own fintech platforms.

There is also no let-up in interest from venture capitalists and investors in the fintech sector. In March of this year, Thought Machine (mentioned above) raised $83 million in Series B funding. There are also many examples of established financial services giants acquiring fintech startups to help them keep up with innovation in the sector. This year alone, Plaid, a company that creates financial services APIs, was acquired by Visa for $5.3 billion. Not only that, fintech companies are also buying each other – Intuit, the creator of QuickBooks and Mint, bought CreditKarma, a fintech startup that lets users check their credit scores, for $7.1 billion.

Here to stay

To sum up, we believe the fintech revolution is here to stay. Fintech companies will need to carry on innovating in order to stave off attention from the traditional financial services giants. Still, with investment funding behind them and sustainable working practices, there is no reason to doubt that they can succeed.

Find out more from Haystack

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