The arrival and massification of the Internet, the advance of technology added to the inefficiency and the high costs of banking as well as the bankruptcy of some banks like Lehman Brothers, has brought the emergence of a new financial industry called Fintech or Fintek, which applies the technology to provide all kinds of financial services, but at a lower cost and in a faster and more efficient way.
Although this term may be new for you, you have probably already made use of some services of this type of companies and then we will see in detail what this new financial industry is all about and that you must take into account when choosing any of these services.
Fintech, more than just a term
The word Fintech is a compound term that comes from English and comes out of the words Finance and Technology, which brings together all those financial services companies that make intensive use of technology to offer innovative products and services, that is, new alternatives compared to what traditional banking offers, but beware: through online channels and / or mobile devices.
Fintech today are companies that are transforming the financial sector, thanks to the offer of solutions adapted to today’s times. In fact, it is said that after a few years, this industry will be participating in 30% of the global financial market and that in the long term it will end up transforming the financial services industry as we know it today.
An interesting fact: imagine that the global investment in financial technology increased more than 2,200%, going from $ 930 million dollars in 2008 to more than $ 22 billion dollars in 2015. For example. The nascent financial technology industry in London has experienced rapid growth in recent years, as according to the mayor of London, forty percent of the City’s workforce is employed in financial and technological services.
In Latin America, countries such as Spain, Mexico, Colombia, Peru, Brazil and Chile already have a Fintech association, which brings together the companies in this sector and which seek to build an ecosystem with the government and the traditional financial sector, in order to modernize and massify the financial services offered in each country.
Fintech business classes
Well and what kind of services do these companies provide? Basically eight types of services:
- Alternative Financing Fintech
The first of these is alternative financing, consisting of the granting of loans of various types to individuals, companies and projects through online platforms.
Usually, loans to people are small and short term with interest rates slightly lower than those offered by traditional banking.
On the other hand, loans to small or medium-sized companies or projects of all kinds are offered mainly through Crowfunding, that is, a collaborative mechanism of financing in which the intermediation of traditional banks is avoided and consists of putting in contact entrepreneurs and / or promoters of these projects with investors seeking an interesting return on their investment and privileges granted by these companies for having financed them. In this activity two characteristics stand out: one, the massive union of investors who finance small projects with high potential and attention with small amounts: the risky nature of this investment.
Within this same category, invoice purchase services are also offered for those companies that have accounts receivable but need immediate liquidity. To do this, they put the company in contact with investors who want to buy these invoices below their price through an auction system so that they can collect those invoices at the expiration of the same, thus remaining with a margin of profitability.
It is also offered through this modality collective financing for small projects, ideas and causes, such as seeking funds to pay the university, give quality of life to an old man or have enough money to perform surgery on your pet.
Payment methods and electronic channels
In the second place are the payment services and electronic channels, consisting of making or receiving electronic payments with debit or credit cards, money transfers, making money orders, payments and recharges and collective savings for different financial objectives. Let’s see each of them below:
The service of making or receiving electronic payments connects commercial establishments, traditional banking and the final consumer. I give you an example: Suppose you have a small business and want to sell online, La Fintech provides the service to receive payment to your buyer with debit or credit card through your page or if you do not have one, through your platform, or in cash if your buyer wants to pay you in this way through different physical points you have in your city and sends your bank the value corresponding to the sale, after having collected a small percentage on it. This is a service that I love because it makes life easier for both buyer and seller.
On the other hand, there is the money transfer service through physical payment points, virtual platforms or mobile phones, with which you can send and receive money from and for any person in any city of your country. This service is very useful when you or the person to whom you are going to transfer, does not have a bank account. Also, through this same service you can recharge minutes for your cell phone and pay some other things, such as your utility bills.
There is another service in this category of payments and electronic channels that I loved, and it is collective savings to finance small financial objectives, an activity that in Colombia we jokingly call a cow. Why is it called that? I do not know, but it’s very funny.
The issue is that if you want to finance among several for example an event such as a party, the excursion or the prom with your classmates or the birthday celebration with your colleagues in the office or the 50 years of marriage of your parents, the Fintech It offers you its platform to receive payments from each member of the group and generate reports of who has paid and withdraw the money when you have already collected all the money. In Colombia there is a Fintech called “armatuvaca.com” that offers this service is totally free and even suggests a list of suppliers for the organization of your events.
I also found another useful and curious service and it is the exchange of coins of all types of denominations such as those you saved in your piggy bank for tickets, after charging a commission, through an ATM. This service prevents you from classifying and counting the coins.
Fintech of Cryptoactives
In third place are the companies that offer the administration of Criptoactives, such as the storage and exchange service of virtual currencies such as Bitcoin and others and services that operate with Blockchain, that is, the data structure with which cryptocurrencies work. We will talk about this topic in another post soon.
Fintech of Financial Solutions for Companies
Fourth are the companies that offer financial solutions to companies, such as the collection of overdue loans, advance purchase of invoices for a company, administration of the entire billing process or design of predictive models to manage their client portfolio.
There is another service that I call quite the attention and is the administration service for apartment buildings, condominiums and in general residential units where in exchange for a fixed monthly commission, the owners of a residential complex can connect through the platform of the Fintech to through your computer or mobile devices to make requests, notify breakdowns or interact with the administrator without the need for face-to-face meetings and where in turn the administrator can send messages to the community, put classified ads, make reservations of common areas, publish the calendar of events and even make virtual meetings and voting.
In fifth place are one of the fastest growing services in the world: The services of acquisition of all types of insurance, where the applicant through his computer, tablet or cell phone, finds the most convenient insurance among a range of different companies of insurance, competing to stay with each client.
Fintech of personal finance and wealth management
In sixth place are the Fintech that offer advisory services in personal finance and serve as intermediaries between consumers and traditional entities that provide credit and investment services.
For example, if you are interested in a housing loan, after asking a series of questions in order to accurately diagnose your financial need in terms of amount, fee, term and rate, they also compete with different financial entities to offer you the most suitable alternative. Also, if your interest is to save and invest, there are other companies that after making a financial diagnosis, recommend the safest and most profitable investment funds or collective portfolios available in the market.
Also, there are other Fintech that have intelligent simulators with which you can diagnose your financial situation, so you can make decisions regarding budget, debt, savings and investment, something like a virtual financial advisor.
Fintech of Trading and stock market
Seventh, we find the Fintech that offer the service of Trading in the stock market, facilitating the platforms so that you can buy and sell all kinds of financial assets, such as stocks, currencies, commodities such as oil, soy, gold and other financial derivatives. .
Big Data Fintech
In eighth place are Fintech companies that offer data intelligence services, better known as Big data, with which for example a company or you can know the interests and behaviors of potential customers, in order to sell almost that of Customized form the product or service you really need.
And finally there are Bigtech companies, made up of large technology companies such as Facebook, Apple, Google, Amazon and PayPal, which are increasingly interested in expanding their business lines, taking advantage of their great brand image and their capabilities in technological and financial resources.
Advantages and disadvantages
Very well. As you can see, the Fintechs are going to be part of our lives more and more and it is important to recognize the advantages but also the disadvantages of the services they offer. Let’s see some:
Definitely, the first advantage is that the Fintech saves you time and money, because they allow you to send or receive money as well as make payments of all kinds from your home or through your cell phone in seconds, free or at very reduced costs.
Secondly, fintech have come to democratize financial services, that is, they have made it possible for a greater percentage of the population to access services of this type, breaking down the barrier of traditional banking procedures and making it possible for a person with only a mobile device and an internet connection can access the financial system, having a savings account or an investment portfolio.
In third place, the Fintechs have made it possible for them to collaborate, that is, by seeking the help of multiple small investors, to finance personal, entrepreneurial or charity projects.
In the case of entrepreneurship projects, this is an alternative that you should use in a prudent manner, because although they are low cost options, they are still debts.
Fourth, another spectacular advantage of the Fintech is that they help us to choose the traditional banking financial services that are most convenient for us, such as the purchase of insurance or investment portfolios by competing different companies, forcing them to lower their prices and improve your conditions.
Fifth, the Fintech facilitate our lives either as consumers or as small or medium entrepreneurs, because in the latter case they put their platforms at our disposal so that we can do business from the comfort of our home or office with high security standards. , at very low costs and without having to have infrastructure or a physical store to achieve it.
Very well. Let’s see now the disadvantages that you have to take into account when hiring any of these services.
Although there are Fintech companies with high standards of information security, data security is a concern for both consumers and regulators due to the risk of Hacking and the proliferation of pirated websites. My recommendation in this regard is to check if the website has a digital certificate. How can you do it?
Seeing if in your browser the URL or address of the site starts with HTTPS and not only with http and also the navigation bar turns green. If this does not happen, it is suggested that you write the url directly in the browser, instead of reaching it through links available from third-party pages or emails. If you want to know more about how to prevent cyber-crime, you can listen to the podcast episode “How to protect your money from cyber criminals”
Secondly, invest your money in Fintech to finance projects, offer trading services in the stock market or manage virtual currencies, I still find it extremely risky, because there are not many of them regulated by the government, there is no guarantee on the money invested. As I told you in episode number 10 of my podcast in which we talked about Bitcoin, if you dare to invest, do it with money that you are willing to lose and that does not compromise any financial objective, such as buying your house, education of your children or your retirement plan. Also, check if the Fintech of your interest is a member of the Fintech association in your country and check the comments that are made of it in blogs, newspapers and social networks.
The Fintech have come not only to stay, but to transform the financial services as we know them today. Each time the services will be more personalized and easily accessible, which will facilitate the administration of our money and save us time.
It is very important that you familiarize yourself with these issues, as technology will increasingly change our way of living and we can take advantage of these changes taking advantage as consumers and entrepreneurs, making life easier and making us earn more money.