Busting five myths about fintech

As fintech start-ups continue to emerge and shake up financial services globally, discussions about the industry will only get louder.

Here is my take on the five biggest misconceptions concerning fintech:

1. Fintech is a bubble, destined to burst

We often hear comparisons drawn between the rise of fintech and the dot-com bubble but really, this couldn’t be further from the truth.

There are already more than 35 fintech companies globally valued at more than US$1 billion and if recent predictions are anything to go by, we can expect the fintech industry to grow from US$3 billion to US$6-8 billion by 2018.

Moreover, the industry has already revolutionised existing practices and is formulating new business models. For example, companies such as TransferWise let people transfer money between countries for a fraction of the cost traditional banks charge.

Others like StudentFunder enable access to education for students who can’t find proper funding elsewhere.

2. The ongoing battle between fintech and the banks

The disruption of the financial market has been portrayed as a war between innovative tech start-ups and incumbent banks. While we all enjoy a good David and Goliath story, the truth is, collaborations are well under way.

Fintechs can often build products and services outside the compliance and regulatory framework incumbents face. However, what they make up for in superior products they often lack in distribution capabilities.

Collaboration with the incumbents, who have established distribution networks, therefore makes a lot of sense.

A recent Accenture study found 60 per cent of investors based in London were open to sacrificing current revenue in order to move to new business models and 80 per cent see working with fintech start-ups as a valuable way to bring new ideas to their business.

3. Regulation will suppress innovation

The regulatory framework of the financial market has always been the biggest barrier for fintechs to overcome.

However, increasing lobbying efforts and cooperation with government authorities have helped fintech start-ups bring their concepts to market and gain credibility and trust.

The UK has already introduced new legislation requiring banks to refer clients applying for funding to alternative financing providers if they cannot or do not want to serve them.

Companies, such as WealthForge, which targets broker/dealer services, are capitalising on the business of regulation.

Moreover, those fintech frontrunners that have successfully navigated uncertain regulatory waters achieve a level of legitimacy that puts them ahead of competitors and on track for more sustainable growth.

4. Fintech will be confined to big financial markets

Silicon Valley, New York, London, and Hong Kong are the epicenters of fintech investment, but the industry has now been opened up to emerging markets.

There is tremendous opportunity for disruptors to advance where banks have been complacent – the growth of fintech in this country is testament to that.

Emerging markets, such as south-east Asia, Africa, and Latin America are starting to gain momentum as fintech companies hit unbanked populations that have not been touched by traditional banking before.

5. Fintech is exclusively lending and payments

Owning 80 per cent of US fintech investments, the lending and payments industry is where fintech activity has been concentrated to date.

However, other areas, such as insurance, market provisioning, investment management, and capital raising are also making a significant disturbance in finance.

The World Economic Forum recently reported that insurance is one of the biggest disruptors, as advanced algorithms and computing power are revolutionising this stale industry.

Data analytics is another hot area, catching the attention of big banks, such as Goldman Sachs; these advanced data analytics platforms hold the key to the future of financial solutions.

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