Wed 23 Jan 2019

Fintech - usage and investment

Financial technology - FinTech - is rather difficult to define and quantify. There are companies that work in FinTech alone and then there are traditional institutions like banks which are offering FinTech solutions.

Crunchbase is a database that "was founded to be the master record of data on the world’s most innovative companies." If you're looking for trends and information on investment across the globe it's a great place to go. The site even includes a global list of upcoming events. The Economic and Scientific Policy Department of the European Parliament set about analysing the data in Crunchbase earlier this year. They found 3852 FinTech companies across 93 countries. The United States has the most FinTech providers. The EU came in second with over a 1000 FinTech companies. The majority being enabler companies and banking service providers.

If we move away from providers and look at users, the UK is leading the way in Europe. In 2017 EY estimated that the average adoption rate was 33%. The UK came in with 41%, Spain and Germany followed closely behind (37% and 35%). They are the only 3 European countries sitting above the global average. When looking at the global picture we can see that China and India have the highest share of users.

So what now about investment? The United States lead the way with US$ 29 billion. As you might expect the China come next however it isn't India that follow. In terms of investment it goes China, the UK and then India. The EU come in fifth with US$ 3.6 billion. That EU figure excludes the UK.

The number of FinTech providers is increasing, the use adoption rate is increasing and global investment is there. Is there something positive that your business can harness from all this?

I'd like to say yes. FinTech and digital ledgers like blockchain can enable financial inclusion. In many countries people can face difficulty accessing bank accounts or the transactions they wish to partake in are deemed of such low value it isn't worth the time of financial institutions. We've seen Kenya being revolutionised by the M-Pesa and the mobile economy. Research by MiT partly funded by the Bill and Melinda Gates Foundation, found that mobile money services brought about a cultural change that reduced poverty. This was especially true in female headed households. The early signs in China and India are that those who have previously not effectively served by the traditional market and left marginalised, are out there engaging. Swathes of households can now be included in markets they couldn't previously access. The doors for a whole new customer base are being opened.

The inclusion of the masses has benefits at home and abroad. Financial services can become more affordable. Advantages to credits and payments come to mind first. If you look behind bitcoin (and other cryptocurrencies) to blockchain the advantages multiply. Blockchain allows you to be aware of all previous transactions, you get a single history of order. Blockchain could be used for:

  • records of ownership like property titles. A stamp and link in title could be replaced by a chain
  • trading and clearing funds in industries such as asset management
  • smart contracts which self-price, self-execute and self-verify
  • supply chain and trade finance, IBM and Maersk have come together in a joint venture to improve cross border shipping through blockchain
  •  tracking ownership of digital assets and physical assets, be that proving ownership of digital art or tracking the ownership of diamonds. Everledger enables tractability which is reducing the risk of fraud in the diamond industry
  • voting, in 2016 Democracy Earth piloted a digital referendum for Columbians living outside the country. Whilst these votes weren't added to the official vote the experiment raises interesting questions on 21st century democracy

Bitcoin and blockchain go hand in hand. Once you've learnt about them both you can re-shape your thinking by taking away the currency element. If you focus on crypto as an asset rather than a currency it can help in visualising the other uses for blockchain and the problems you could solve. There will undoubtedly be disruption. Major disruption events can lead to positive outcomes. There is talk of the 4th industrial revolution and the endless possibilities in this young field of innovation. Come on, get informed so that you can see the advantages available to you, your business and your clients.

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