With the rise of technology in every aspect of our everyday lives, it makes sense that the financial sector would attempt to capitalize on new technology opportunities. Our society is increasingly turning away from cash, with a 50% drop in cash used in the U.S. between 2010 and 2020[1]. The COVID-19 pandemic helped accelerate the shift towards online financial institutions, mobile wallets, and digital payments. To accommodate the changing demands, FinTech companies have emerged to help solve the difficulties faced by consumers seeking online finance solutions.
Fintech is short for financial technology, which is technology designed to improve the online offerings and use of financial services. Encompassing neobanks, payment processors, roboadvisors, mobile wallets, and cryptocurrency applications, fintech companies are an important part of the emerging fintech industry.
Neobanks are fintech organizations characterized as 100% digital and have no physical presence or branch. They typically provide services similar to traditional banks, like savings and checking accounts, and may support money transfers and loans. However, they are fully removed from physical cash, and do not typically provide ATM services. Some neobanks may partner with another financial institution to support withdrawals, but they primarily focus on their digital presence. Major neobanks include Chime, Monzo, and Revolut.
Cryptocurrency applications and websites also fall into the fintech sector, typically with their entire presence in digital form. Crypto wallets, payments infrastructure, and NFT marketplaces have emerged to help support decentralized blockchain-based transactions. To learn more about cryptocurrency, check out our recent blog, Cryptocurrency Explained.
Cross-border payments, or payments made across geographical lines in different currency pairs, also are a key sector in fintech. As global trade has increased, it has helped create an increased demand for more technology to facilitate the cross-border payments.
The fintech industry has made a name for itself as the largest funded category globally, receiving more than $210 billion in capital in 2021 in venture capital, private equity, and cross-border mergers and acquisitions[2]. With the growth seen in fintech in recent years, a new competition has emerged among various fintech companies: The Fintech Wars.
The growth of fintech has provided opportunities for companies to develop new technologies as companies attempt to compete with one another to take a leadership position in the market. One of the battles in the fintech wars is in the Buy Now, Pay Later (BNPL) segment. BNPL technology allows customers to purchase items in installments with a preset interest rate ranging from 0% to 30%[3]. A survey from C+R Research found that 51% of consumers used a BNPL service during the COVID-19 pandemic[4]. Fintech companies such as PayPal Credit, Afterpay, Affirm, and Klarna are participating in Buy Now, Pay Later and are striving to offer more services, reach more consumers, and help enable more transactions.
Changing consumer spending patterns, increasing inflation, and the rise of technology in our everyday lives have helped contribute to the fintech wars, encouraging overall growth in the fintech industry. As of now, it is difficult to determine who is “winning’ the fintech wars, as strategic partnerships and new technologies have been keeping the competition consistent. The fintech wars are ever-changing, and it will be interesting to see how it evolves in the future.
With the rise of technology and consumer spending patterns shifting to online purchasing, fintech is becoming a key contributor. As more products and services are sold online, fintech companies are emerging to help facilitate the way money is collected and managed. Because fintech is an ever-changing industry, new companies and solutions can continue to emerge in the market as they strive for market share. Personalization and automation may be the next logical steps to satisfy consumer demands, but the ways we purchase products and services and disburse payments online have been the focal points in the industry. It is difficult to predict how fintech will change and grow over the coming years, but the importance of fintech in our everyday lives has increased.
[1] https://blog.benchmarkcorporate.com/2022-fintech-industry-report
[2] https://blog.benchmarkcorporate.com/2022-fintech-industry-report
[3] https://www.nerdwallet.com/article/loans/personal-loans/buy-now-pay-later
[4] https://www.crresearch.com/blog/buy_now_pay_later_statistics
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