The computational power of computers and the connectivity inherited from the internet have made technology a powerful complement to many sectors. Financial services and products have recently been impacted by technology and they have merged into what is called Fintech. We will take a look at how Fintech startups have been incorporated in most financial products and services.
The Rise of Fintech: Potential Displacement Of Traditional Financial Services
Technology is fueling the emergence of competitors across financial services. We encounter lender startups such as Prosper and OnDeck. Prosper, which utilises a listing and bidding process to get competitive rates for loans is now worth $2 billion. We also see payment processing competitors with Stripe and Square being the biggest names around, totaling a $10 billion valuation. Other processors such as Clinkle are rapidly rising haemorrhaging high-profile executives.
Fintech Creates New, Unregulated and Decentralised Currency
Beside products, technology has dived deeply into the roots of finance, all the way to the creation of money. In 2008, Bitcoin was introduced as the first virtual currency. Bitcoin works as a decentralized currency where money is mined with computers by solving difficult math-based equations. Its success has spurred the launch of many other virtual currencies which are more attractive because they are easier to mine, but at the cost of greater liquidity risk, acceptance and value retention. Bitcoin’s impact is so large that some bitcoin- related startups have grown substantially. For instance, Coinbase, the world’s most popular way to buy and sell bitcoins, has reached an estimated value of $0.5 billion in four years.
Fintech Widens Your Investment Options
Fintech has also incorporated technology into new investments types. Existing investment sectors and investment tools are strictly regulated by the government, yet it has been proven that a startup is also capable of creating a new investment sector by developing suitable investment tools. PureFunds, for example, has developed the first thematic Exchange-Traded Fund (ETF). Their symbol GAMR is the first video game technology ETF that provides the market with a transparent vehicle to invest in the video game tech sector. Other themes include Cyber Security, Drone Economy Strategy, Mobile Payments and Health and Medical Technology. The explosion of PureFunds is near the magnitude of other Fintech startups. According to MarketWatch, PureFunds grew $1 billion investment in 7 months.
Insurance Premium Is Never The Same Again
As with other financial services, insurance is not spared by the impact that technology brought to finance. For example, data collection of individual’s mobility and daily activity allows development of personalized models for pricing risk. This is beneficial for insurance companies because personalized models yield a more effective pricing. On the other hand, individuals may benefit from personalized models if insurance companies reward low-risk behaviour with discounts in health insurance.
Earlier this week, Singapore kicked off a week-long FinTech Festival, the world’s largest fintech event. With that, Singapore, being a financial hub, is also claiming their position as a fintech hub. The festival was organised by the MAS to create a platform for financial institutions, fintech startups and investors to come together and explore new ways to create leaner financial services with the help of technology. The digital disruption within the finance sector is here to stay, if not growing stronger by day.