Note on Fintech: Part 2

For a college master application, I had to write a two pages note on the domain of fintech. I thought it would be interesting to share it here and have some feedback! Here's part 2!

In the last post, we have considered the historical evolution and geographical adoption fintech. We will now deep into the current market. In order to analyze it, I have split it into two parts: the actors of the markets, and the services and benefits they provide. Understanding the roles of actors is essential because they are the ones that pushed the market in the next decades.

Before the 2008 financial crisis, only traditional financial actors, such as banks and insurances, provided financial services. During the period post-crisis, startups and technology companies enter the industry. Technology companies used their important community to deliver financial services, like Apple with its Apple card. On the other side, startups became so important that according to Dealroom data, 18,926 fintech startups have been created from 2010 to 2019 in Europe, Asia, and the US & Canada. Accordingly, investments to these startups reached a peak of $111bn worldwide in 2018.
Traditional financial institutions are still contributing to the fintech domain. They invest massively in startups or accelerator programs and do partnerships with startups. For instance, corporate venture capital was multiplied by 6x between 2014 and 2018. Moreover, they try to adapt their services' offers.
Finally, governments rule the game. They push innovation and protect consumers with regulations. They guarantee consumers protection and prevent any abuse from companies delivering services. For instance, in the United States, the SEC has sued several crypto-companies that have done Initial Coin Offerings in 2017. The institution accused the companies to have misled consumers. Governments also invest in startups. For example, BPI France, the French public bank of investment, invested €1,3bn in startups through its innovation funds. Such investments allow startups to raise more funds easily.
Finally, governments create the first layer for the development of fintech. As mention in the previous post, China and Sweden are developing their digital currency. This development will be key in the future of finance for these two countries.

We have seen that actors are key to the development of fintech. We can now analyze whatis the added value offered to understand the next big innovations in fintech.

We can begin with the cost reduction and convenience offered by fintech companies. These companies offered a pay-as-you-consume business model. In China, you only need one or two applications to deal with your personal finance. With these applications, you can pay, manage your expenses, or ask for a loan. Alibaba and Tencent, through their application AliPay and WeChat, offered the possibility for millions of users to put the entire personal finance experience at their fingertips for free.
Technology also brings a myriad of new services. Advancement in Machine learning, for example, enhance the possibilities in investment with the use of robot-advisors in asset management or trading. In 2019, the top 5 robot-advisor managed $239bn assets, and the total asset under management by robot advisor was estimated to be $1,44 trillion. Advancement in machine-learning algorithms is now used for credit rating in lending platforms and financial coaching.

As a recap, we have seen why actors were key in fintech because they provided the resources needed for innovation but also created the innovation. Fintech brings convenience, costs reduction, but also performance. We are now able to look forward and analyze the challenges and stake for the future of fintech.