Fintechs are companies that combine the provision of financial services with processes based entirely on technology. They arise from the union between the financial and technological area. You can say that, financial + technology = fintech and thats how they began. And are promoting a true revolution in the financial market. The mission of these companies is to innovate, optimize and improve the services of the financial sector.
You may ask yourself, is it possible that financial services are carried out without so much bureaucracy and waste of time? The fintechs are showing that yes, it is possible. Besides involving less bureaucracy, they have much lower operating costs than traditional banks and achieve, through technology, impose more efficiency and agility in the processes.
How did the fintechs come about?
The fintechs are the result of two events that crossed. The international financial crisis of 2008. It is when the traditional American investment bank Lehman Brothers went bankrupt, and the trend towards total automation, expression of the 4th Industrial Revolution.
Why the crisis of 2008?
Because after the Bank Lehman Brothers bankruptcy and the financial aid that the US government had to lend to it, the public sector of the developed countries, to avoid new crises, created a series of regulations for the big banks, mainly those considered “Too Big to Fail”. As a result, many sectors of these banks became too entangled, such as the bank loan sector, where part of the fintechs are concentrated.
In this way, startups, which are innovative business models, strongly supported by technology, with low cost and much more flexible, emerged to fill those gaps. And many of them relied on the experience of people who were fired or left the big banks.
And the figures show that the financial market is resilient with fintechs. In recent years, global investment in these companies has reached between 30 and 40 billion dollars a year. In Mexico, for example, more than 300 new fintechs have emerged in the last five years.
Does this mean that more than 300 new banks have emerged?
No not! The innovative services Fintech offers are not based solely on digital banks. They offer various types of financial services, acting as brokers, as payment mediators, as issuers and receivers of transfers, as financial advisors, etc.
In addition, the traditional banks themselves have allied with the fintechs to offer new products and services to their customers. For example, a large part of the bank runners surveyed already use financial services or fintechs products.
What are the services offered by the fintechs?
Since the focus of the fintechs is on technology, they are less bureaucratic. And although they have fewer products, they have more specificity. Below we present the main areas of action of these companies, as well as the most promising fintechs in the world in each branch according to the CB Insights classification.
Bank account
With the fintechs, the current account of the individual or legal entity can be digital, without bureaucracy, with all the resources of a traditional version.
This means that, being connected to the Internet, it does not matter if on the computer, tablet or cell phone, the user performs all the financial movements that he wants. This includes transfers of values, account payments, balance inquiry and extract, among other functions.
In addition, these fintechs realize the dream of anyone, which is a credit card without consent and with lower rates. The card is fully managed by the user through the mobile application.
In practice, the customer has full control over their operations and can even change their limit. As it happens with other financial services, in the case of the card. The secret of the low cost is in the smaller structure required of the fintech for its operation, once all the processes are lean.
The main fintechs that offer these services are: NuBank, N26, Petal, Gimi, Greenlight and Neon.
Loans
Fintech companies offer loans that can be applied for completely online, without leaving home. The customer receives the money quickly, in addition to having low interest rates. In addition, this type of fintech manages to bring people who need a loan closer, with whom they can lend money with interest well below the banks.
The main fintechs in this branch are: WeLab, GoFundMe, CircleUp, LuCom, UpGrade, Bread, BeHalf, C2FO and TradeShift.
Microinsurance
With microinsurance, it is also possible to carry out by digital means the contracting of life insurance, health insurance, travel insurance, insurance of automobiles and other vehicles, insurance for companies and also residence insurance. All this directly, without intermediaries.
In this area the main fintechs are: Lemonade. Hippo, Ethos, WeFox, Coalition, BIMA and Spruce.
Investments
The investment fintechs arose to help people in the application of capital in a safe, easy and with optimal profitability.
They differ as much from conventional banks, which have a limited investment book, as from digital banks, which, although they simplified the language of the financial market, still have a very limited portfolio of financial applications.
The main fintechs that offer this service are: Cadre, PeerStreet, RealtyShare and RoofStock.
Financial management
Fintechs of financial control emerged to help people have better control over their spending and financial planning. The products can also be useful for companies that need tools for accounting, billing and payroll of employees.
The main fintechs in this branch are: Bag Guide, Raisin, Personal Capital, FoliO, Guideline and WealthFront.
Transfer of funds
These are companies that managed to break the monopoly of banking entities, creating better money transaction mechanisms with lower costs. The main ones are: Transferwise, Toss, BitGo, Ripple and Circle.
Crowdfunding
Also known as collective financing, the services of fintechs crowdfunding serve to attract people to investments for social causes or cultural projects, for example.
The main crowdfunding fintechs are: KickStarter, Indiegogo, CrowdCube and GoFundMe.
Conclusion
Due to the high demand for more practical and simple financial services, fintechs have created innovative products. And are increasingly challenging the banks and institutions that maintain the old business model.
Also published on Medium.