Fintech is not just fancy terminology, it presents a paradigm shift in the financial sector as it is blurring the boundaries of both financial firms and the financial sector. It is something that has greatly shaped how we live in the modern dispensation. Whether you are aware of this or not you employ fintech more often than you can imagine. As you may have guessed, fintech is a synergy of financial services and technology to yield faster, better and more secure transactions
consequently improving the overall user experience in the financial industry.
Paytech, Regtech, Lendtech, Banktech, Insurtech and wealthtech are some domains
that are redefinining global finance.
You may have heard the phrase 'financial technology is the future of finance', you also know that finance in itself is
quite broad and encompasses several areas like credit, banking, leverage,
capital market, insurance and more.
If fintech is the future of finance then this suggests that it should have several domains as well right? Exactly!
Fintech Is now an umbrella term with several subdomains, so in this piece, we hope to break down the various domains in
fintech to give you a better understanding.
If fintech is an area of interest for you or apossible career path then reading until the end is something you should do.
This will help you decide which domain has the most potential or which will
better suit your startup vision.
Fintech has gone through so many changes and evolution in recent years. The recent hype of fintech can be attributed to the fact that technology has advanced significantly across the globe.
In 2008 when the financial crisis hit, many institutions were forced to focus on regulation and that triggered huge
innovations within the space. Smaller players were able to step in because the
incumbent institutions lost public trust and people wanted more personalized
services.
In 2020 the pandemic made digital transactions anecessity and no longer a luxury. Fintech is easing the lives of customers
worldwide. We are seeing mobile technology power more transactions, this has
brought more players into the system.
Fintech Has Changed the Way we find and engage customers, relate with our bank, transfer money, borrow money and get insurance
etc. All of these services have now become subcategories within the fintech
ecosystem that various players are specialising in.
We've heard of massive investment going into the fintech sector in recent times, so let's delve into the various domains namely
Paytech, Regtech, Banktech, Lendtech, Insurtech and Wealthtech and see what they hold.
PayTech
This happens to be the most popular category.Just like with fintech, it is the synergy of payment and technology. It
includes everything ranging from everyday contactless transactions, e-wallet transfers,
crypto and the internet of things.
It is the subsect of the fintech industry that primarily focuses on payments rather than finance as a whole.
Before this era, payments were merely an exchange of money for goods or services and it ended there. But with Innovations in
payment methods, mobile advancement in wearables and embedded finance, which is
essentially integrating financial services into non-banking apps, platforms or
websites like Amazon, the way we make payments and transact has changed dramatically.
More people are switching to mobile and digital payments meaning that the
customer experience of paying has evolved as well. Now, there is a massive
opportunity to evolve the customer experience with innovation and technology
and that is the main focus of Paytech.
Non-cash payments are set to reach 1.96 trilliontransactions by 2029 according to Smithers
Now with regulations like PSD2 and open banking, we can only expect the growth to continue.
There is continuous growth in e-wallet adoptionand the pandemic came to encourage cashless transactions.
In 2020, card payment transactions (includinge-money) were the most popular form of cashless payments used in France with
almost 14 billion transactions. Direct debit payments ranked second with about
4.6 billion payments - Statista
Lots of players like card network operators, payment service providers & gateways and electronic money issuers are some
of the popular Paytech participants.
With the way things are shaping up and the momentum being built, we may expect that Paytech will soon stand alone as
opposed to being a Fintech subdomain.
There is tremendous potential for growth in Paytech as customers' expectations are increasing and they continuously demand
more online and digital payment avenues. This demand has to be filled by more
innovations further expanding the potential in this domain.
RegTech
This term was first coined by the UK's financial conduct authority in 2015. It was defined as a subset of fintech that Focuses
on technology that will facilitate the delivery of regulatory requirements more
efficiently and effectively than existing capabilities. Simply put, Regtech is
any technology that helps a company comply with regulations.
Although this subdomain is relatively young, itis maturing rapidly, following the high number of market crashes and
institutional fraud cases that caused a spike in the sheer amount of regulatory
policies in the financial industry.
According to Reuter's cost of the compliance report, a new regulatory policy is enacted every 7 minutes. Upon failing to comply with
these policies companies are dealt with a fine. These fines are hefty and are
becoming more frequent and severe. Institutions are having to pay well into the
billions of dollars in fines every year, so it's only normal that they will
seek out the most innovative ways to ensure compliance.
Regtech companies emerged and now leverage artificial intelligence, blockchain and other technologies to bring the power
of digital transformation into a previously traditional world of regulatory
compliance. Initially, the financial services industry met Regtech with a lot
of doubt and hesitation which is understandable because, even though the
solutions these Regtechs offered were attractive, when it comes to regulatory
compliance there is a very tiny room for error before you are hit with another
hefty fine.
A lot of the incumbent players wanted Regtech companies to prove their Solutions before they would take any chances with
them. It was at this point investors came to the rescue. The investors
understood the massive potential that existed within the space and they backed
it up with their capital.
According to the Regtech analyst, investment in Regtech rose from 1.1 billion to 8.5 billion. These investments help to push
Regtech past innovation and into the mainstream. This boost from investors
helped convince the financial institutions that the value they provide was real
and effective as long as it was implemented correctly and responsibly. Regtech now delivers greater efficiency and accuracy in comparison with the manual process which causes compliance gaps. It
also creates improved risk management and internal alignment. Get expert advice
on Regtech, compliance and audit here. So the future looks bright for this subdomain.
LendTech
As the name, May suggests this is the Fusion oflending services and technology. Many of us Have become familiar with finding
services to serve our needs online and securing loans is no exception. With the
growth in the fintech sector consumers now tends to seek services online that
were traditionally only available in the banks. Lending technology is rapidly
becoming the new norm for people looking to access loans.
So in simple terms, this is the home of fintech that Focuses on providing secure loans for people online all via the mobile
phone.
Lenntech Sometimes partners with traditional Banks but may also operate independently. Some popular latex models are P2P
(peer-to-peer), crowdfunding and buy now pay later.
BankTech
This appears to be the most self-explanatory...technology for Banks. In this modern dispensation, banking has become
something we do rather than a place we go to. A lot of traditional Banks are
undergoing major digital transformations. The end goal for this transformation
is to have modular AP agreements, and end-to-end digital banking platforms to
grant customers a unique experience.
Banks are not technology institutions as theirmain focus and expertise are in developing and serving customers with the best
products and playing the intermediary role between those who have extra and
those who want to borrow and this is where banktech institutions fit in.
Banking technology companies facilitate a bank's digital strategy, enabling the bank to focus on banking. They help banks
provide secure sustainable and reliable services to customers, engaging
advanced technology and consequently, giving the bank a competitive advantage.
Banktech is quite broad and covers all the players that facilitate banking
services by integrating APIs.
Unlike some other fintech domains, Banktech isnot in any competition with the bank. They are merely collaborators and also
leverage their wealth of experience in the banking sector.
InsurTech
Going with the existing trend, you can easily sayInsurtech stands for insurance and technology. These are the institutions and
companies that are disrupting the insurance industry using technology, and
bringing about innovations. This domain may be in its infancy but there are
some start-up incubators dedicated solely towards Insurtech.
Large companies are taking advantage of big dataand AI to update their offerings in collaboration with Insurtechs and startups.
This presents huge opportunities within this space as today's customers want to
purchase insurance with the tap of a button and not feel lots of forms.
Insurtech companies are well aware of this and are harnessing data to offer
tailored experiences and policies, using online digital signatures as a means
of verification and AI for cutting out repetitive tasks that previously may
have required an insurance broker.
Insurtechs aims to improve customers' experience with insurance. Providing more user-friendly interfaces, eliminating hard copy
works in insurance. This helps them process claims much more quickly. All these
are achieved by leveraging technology.
Considering the size of the insurance industry the potential for growth of Insurtech will always head northwards.
WealthTech
Wealth technology is the overlap between digitalization and investments/wealth management. This domain focuses on
aggregating the digital tools required for facilitating the process of wealth
management. As the other domains of fintech see massive innovation and growth
it is only normal that there will be more digital means to both store and
secure this growth and wealth.
As we witness the transfer from the older generation of boomers who were content with the traditional Avenue of service,
to the tech-savvy gen-x and millennials, it becomes clearer why wealth
management and consequently wealthtech will progressively evolve.
With advances in social trading, robo-advisers, AI and big data, it is obvious that wealthtech is an established subdomain of fintech and will see a lot more innovations going forward.
If you previously had a narrow view of fintech, I believe this may have provided a little more exposure and a better perspective on the myriad of opportunities that lie within this space.
No matter your reason for looking at fintech, beit a career, investment or startup there will be an area of fintech that meets your expectation.