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What Is Fintech and How Do Technologies Transform Finance Industry?

An abbreviated version of “financial technologies”, fintech is used to denote the technologies used to improve and automate financial services and the provision thereof.

Fintech

What is the origin of fintech?

Peter Knight, the Sunday Times editor, was the first person to have ever used the fintech acronym. He took it to describe the bot that changed his email box.

The phrase however never became widely used. The story went on till the Financial Technology Monitor company decided to use the term to describe companies engaged in financial technologies.

Soon, fintech became a common word in professional newspapers and magazines. Yet, it was only during the 2007 financial crisis that the notion turned into a common term used outside the financial industry. It happened after venture companies had invested enormously in the fintech industry that became a viable alternative to the financial institutions that went bankrupt.

The words “fintech” and “companies” go hand in hand. The word combination denotes legal entities that develop innovative financial services, products, and business models. Oftentimes, the result is cheaper, more efficient, and user-friendly products and services.

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If you intend to set up a fintech company and you don’t have the slightest idea of where to start, the International Wealth team suggests you turn to us for a free initial consultation. Thereat, experienced industry pros will help you pick up the best jurisdiction to incorporate a fintech company. 

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What are the fintech elements?

A wide variety of financial services and activities belong to fintech:

  • mobile payments
  • online banking
  • peer-to-peer lending
  • crowdfunding
  • digital currencies
  • blockchain technology
  • consultant robots and development thereof as well as multiple other innovative financial services.

What is peculiar about the fintech industry is the ever-expanding number of its functions and sectors. This happens while the number of spheres using fintech products is growing as well.

Below, you will find the most popular fintech areas as of today:

  • Digital payments. Here belong innovative payment solutions, e.g., mobile wallets, peer-to-peer payment apps, and digital payment platforms.
  • Lending. It is about technologies used to optimize underwriting and applying for loans. With it, faster, more efficient, and oftentimes cheaper consumer and small business loans are possible.
  • Capital management. Asset management companies employ fintech technologies to automate and personalize their investment and portfolio management recommendations.
  • Insurtech. Fintech companies in the insurance industry make use of modern technologies to offer innovative insurance products and services to customers, with peer-to-peer insurance, microinsurance, and UBI (usage-based insurance) among them.
  • Personal finance. Fintech companies in the sphere of personal finance offer multiple instruments and services that consumers use to optimize personal finance management. Here belong budget planning apps, financial well-being platforms, and investment tracking tools.
  • Cryptocurrencies and blockchain. In the above sector, fintech companies develop blockchain-based solutions, with cryptocurrencies, smart contracts, and digital ID management among them.  
  • Regtech. Fintech companies develop special-purpose apps for financial institutions to meet complex regulatory requirements such as anti-money laundering (AML) regulations and know-your-customer (KYC) rules.
  • Trade financing. The industry is represented by tech companies that develop efficient and secure financial solutions for international trade such as supply chain finance and invoice payments.
  • Neobanks. These are financial institutions without branch offices that provide remote banking services only. With no rental or payroll expenses, they come with lower service rates. Inexpensiveness and user-friendliness are the main neobank advantages.
  • Real estate. Those fintech companies that engage in real estate use modern technologies to transform traditional industries. They offer online platforms to sell and purchase stuff and engage in real estate crowdfunding. Apart from this, they make mortgage application procedures easier.
  • Digital identification and security. These fintech companies develop solutions for better and more efficient digital ID verification and cyber security, including, inter alia, biometric and multi-factor authentication, as well as secure data storage and transmission.
  • Big data. To shape new ideas of consumer behavior and creditworthiness, fintech companies use various data sources, including social media activity and online shopping habits.

Go ahead and learn more about the fintech industry and the latest fintech industry news.

How does fintech influence the consumer market?

Every year, the Plaid analysts report on the impact of fintech on consumers. In their 2022 study, they highlighted these 3 trends:

  1. Two-thirds of consumers noted that fintech had helped them to cope with economic difficulties (63%), while half of the consumers managed to better control their finances using finance technologies (48%). Nine out of ten users noted the benefits of fintech tools (93%), the highest figure in 3 years.
  2. Nine out of ten consumers want more control over their financial data. Three-quarters of respondents are more likely to use the app if they can sign in and access it instantly (76%). Eight out of ten prefer apps that verify users and their identities (80%).
  3. Consumers with temporary money issues use apps to make payments (63%) and advance payments (20%). Those who earn enough use budget apps to track their finances daily (63%).

Interesting facts about fintech  

Let’s delve into fintech popularity around the world. To do it, we will use the stats and forecasts below:

  • The global fintech market is forecast to reach USD 165.17 billion in 2023, while in 2027, it will be over USD 400 billion.
  • The fintech market grows by 25.18% per year on average.
  • In 2021, over 26,000 fintech startups were launched.
  • In 2022, digital payments totaling USD 8.49 trillion were made.
  • North America is the regional leader in the number of tech startups.
  • Digital banking is the largest fintech segment. The number of digital payments to be processed globally in 2023 is about to reach USD 8.49 trillion. The segment is forecast to grow by 12.31% per year on average till 2027.
  • By 2027, the number of users in the digital payment segment is expected to reach 5.5 billion.
  • Neobank revenue growth will amount to 28.9% in 2024.
  • Out of global economies, China has the highest fintech service penetration rate of 87%.

You are welcome to learn more about the global fintech leaders.

Top fintech ecosystems

A fintech ecosystem denotes an entirety of companies working together toward a common goal. Here’s what it generally includes:

  • startups
  • respected financial institutions
  • finance technology providers, regulators, and investors.

Depending on their relationship quality and level, there may be both favorable and unfavorable fintech development environments for ecosystem members.

To duly establish the right jurisdictions for fintech company incorporation, analysts rate ecosystems. Below, you will find the Fintech Startup Ecosystem Rankings made by Startup Genome. Please mind that cities and not countries are rated here.

Top-10 fintech ecosystems in 2022

PositionCityRegion
1Silicon ValleyNorth America
2New YorkNorth America
3LondonEurope
4SingaporeAsia
5Hong KongAsia
6BejingAsia
7Toronto-WaterlooNorth America
8Los AngelesNorth America
9BostonNorth America
10ParisEurope

Is the fintech industry a draw for you? Would you like to be a part of it? If so, don’t hesitate to contact the International Wealth pros to assist you with selecting the right incorporation jurisdiction for your fintech company, setting up a bank account therefor, and duly structuring your business. For any questions and comments, please message International Wealth at [email protected], and our consultants will contact you shortly.

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