FinTech, the Blockchain, and Cryptocurrency
Understanding the markets for cryptocurrencies and fintech and how the use of the distributed ledger brings additional value in the recording of non-financial asset ownership and, coupled with digital currency, could provide a platform for future innovation to reduce costs and speed up transactions
Financial Technology or FinTech is one of the most promising industries in 2017. The FinTech revolution, driven by a wave of start-ups with innovative and new business and revenue models is changing finance for the better globally. These FinTech firms offer users a range of financial services that were once almost exclusively the business of banks.
At the end of 2015, Forbes stated, “The banking industry is ripe for change with the rise of FinTech startups, the growing popularity of blockchain technology, and the dominance of millennials. The industry is evolving and the ever-increasing need to prepare for cybersecurity threats remains top of mind, as banks continue evaluating new threats and potential fraud risks.”
Response to the Financial Crisis and FinTech's Emergence in Developing Markets
FinTech companies offer trust, transparency, and technology. Responding to a trust crisis towards banks, start-ups are able to offer services at a lower cost in a more transparent way, through easy-to-use interfaces. The customer is king and there is no one who knows their customers better than youthful, edgy start-ups, often drawn from the ranks of the millennial generation itself.
By allowing transparency and cutting middlemen fees, FinTech start-ups enable individuals to have control over their own money. End-users know how much they pay, and incidentally, this is less than what they used to pay.
FinTech is also widening access to investment opportunities, through crowdfunding. If you have a small amount to invest, you can still have an impact and potentially reap some benefits.
FinTech manages to provide access to information, that once belonged to a select few, to an ever-increasing pool of people. In our “information economy” age, that is a big democratic move.
We expect to see most FinTech innovation come from Asia, followed by Africa, North America, Latin America, and eventually Europe. The reason is quite intuitive: the lack of infrastructure in developing countries leaves room for innovation that would not find success in over-banked and heavily entrenched economies in the West. In addition, whereas FinTech services in developed countries are focused on online customers, start-ups in developing countries are addressing a broader market: cell phone users.
Mobile money transfer services such as M-Pesa have made major contributions in changing the economic situation of underbanked populations in Bangladesh and Kenya. In Bangladesh, the M-Pesa equivalent is bKash which is focused on mass-market mobile financial services. While Bangladesh offers a strong microfinance industry (small-scale unsecured credit), bKash works like M-Pesa, sending payments quickly and easily to others.
In 2013, International Finance Corporation (IFC), a member of the World Bank Group, became an equity partner in bKash and in 2014, Bill & Melinda Gates Foundation also invested in bKash to ensure access to a broader range of financial services for the low-income masses of Bangladesh to achieve broader financial inclusion.
In sixteen African markets, there are now more mobile money accounts than bank accounts.
FinTech in developing countries is not only about making existing services more convenient: it is creating new infrastructure, and providing for greater inclusion of millions of people in the real economy.
The time when financial institutions could bundle their services together without transparency and still enjoy full loyalty from their customers is coming to an end. The smartest move is to collaborate, not to compete - and many banks understand this.
The Market for FinTech and Blockchain
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Francisco Del Toro is a senior at the George Washington University pursuing a Bachelor of Science in Economics with minors in Statistics and Political Science. Francisco is passionate about financial technology and the role FinTech innovation will play in developing countries. Other areas of interest include the political and economic affairs of countries that lack both strong banking institutions and anti-corruption/anti-money laundering laws and how this impacts financial inclusion. To better understand this he has acquired strong knowledge on financial technology, cryptocurrenices, blockchain development, and the effective regulation needed to reduce risk for all participants. These interests culminate from a breadth of experience working for Cogent Law Group, JPMorgan Chase & Co., and blogging about blockchain and FinTech. He will be conducting research on financial technology and how it influences financial literacy as a Research Assistant for the Global Financial Literacy Excellence Center during his senior year.
Francisco Del Toro
Economics, Statistics, Poltical Science, Cryptocurrency, FinTech
Chief Editing Officer of financeandtechnology.net