Fintech innovation has seen rapid growth over the past few years and is producing businesses with scalable products. In turn, senior executives at banks are responding to the challenge these businesses present and have begun to set up their own incubators to capture this rapid innovation.
Driving much of this has been the rise of platform technologies. Companies such as AirBnB and Uber have turned themselves into global enterprises using these technologies. Such platforms make it possible for new kinds of commercial interaction to take place.
Technology used to be centralised, with businesses being run on large databases and transaction engines. Today, it is massively distributed – there’s more power on a couple of smartphones than on the International Space Station.
While major banks still operate using the old technology, new companies have sprung up to take advantage of the opportunities this shift brings. The term “peer to peer” captures some of this phenomenon, in that it is now possible for financial transactions to take place on a platform without having a bank or indeed any entity as an intermediary.
Ultimately, the financial services market is all about secure, efficient, reliable data movement, and in many cases the new options can be faster and cheaper than traditional models. A wide range of potential models exist, which explains the increasing number of new financial technology startups that have entered the marketplace.
This is illustrated by some of my own investments. Freemarketfx uses technology to give SMEs access to its simple, fair and efficient foreign exchange platform to execute their foreign exchange needs at a fraction of the price charged by banks and/or traditional intermediaries. BetBright is one of the few online entertainment e-tailers that has built its own proprietary platform. It is using this technology to gamify traditional bookmaking activities and utilising social media to further enhance the peer to peer gaming experience.
Aquis Exchange, meanwhile, through its innovative subscription pricing model and unique in-house built technology, has all the ingredients to be a major disruptor in the exchange space. The company’s recent decision to ban high frequency trading firms’ aggressive order flow has proved very disruptive and further enhanced its chances of success in taking on the big equity exchanges in the UK and across Europe.
Of course, fintech is not new and technology has always brought benefits to consumers. Back in the day, however, development costs were substantial and required major computing power, while today’s technologies are more broadly available, affordable and, above all, globally scalable.
Read more: Where are the insurance tech startups?
While some are saying that interest in fintech is slowing, I don’t personally believe we are even scratching the surface. From where I’m sitting, it is clear that the nature of financial services is undergoing a fundamental shift to meet the needs of younger, technology-savvy generations in a much broader pantheon of activities.
Millennials, who have grown up using technology, simply won’t adopt old models if it isn’t in their interests to do so.
The big banks think the same, setting up their own innovation arms to explore opportunities presented not only by P2P but also by mobile and micro-payments, cryptocurrencies like Bitcoin, and distributed ledgers such as blockchain.
But organisations like freemarketfx, BetBright and Aquis Exchange can move faster, learn faster, and react faster to market, regulation and technology changes.
They can also focus on providing an integrated customer experience first, rather than seeing this as an additional layer on top of their fragmented service offerings.
What can go wrong? Like most organisations succeeding in the platform-based economy, maintaining a good reputation and ensuring a great customer experience are key. The UK is leading the way in fintech regulation and I welcome the work of the FCA’s Project Innovate to develop industry standards and regulation, while encouraging innovation and promoting competition in the financial sector.
But as innovative as traditional financial institutions try to be, they will continue to be hampered by their legacy systems and processes. I see the banking landscape continuing to change rapidly as fintech companies with viable products, talented management and clever marketing using traditional and new media take market share. These are exciting times indeed. Moving fast, nimbly and efficiently to capitalise on opportunities is the key.