FINTECH MODELS— EACH VARIANT OPERATING IN THEIR NICHE MARKETS
What is fintech? It is basically a portmanteau of finance and technology. The world of technology has collided with the world of finance, causing some disruptive evolutions. With technology and finance merging together, there is bound to be disruption and synergy in the global fintech market. Established financial institutes are collaborating with fintech firms (some are startups!) through either strategic partnerships or investments. According to McKinsey Panorama, almost 80% of financial institutes have entered into fintech partnerships. In 2018 the global venture capital (VC) fintech investment reached to USD 30.8 billion from a meagre value of USD 1.8 billion in 2011.
The average deal size is also increasing, with Asia being in the forefront, where certain mega deals have made the market twice as big as the global average. People are going gung-ho with fintech deals in Asia. In 2017, Zhong An created a buzz with an IPO valuation of USD 11 billion.
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Different fintech variants:
The above mentioned figures belie some nuanced set of developments. These developments include the different models that cover the fintech market. Of these different models, four distinct models stand out:
Fintech as a start-up: many firms who are looking forward to enter the financial sector are doing so in the form of fintech firms. These firms are using new technologies and approaches to create economic models very similar to that of banks. These are mostly targeting niche financial products.
Fintech as an incumbent financial institution: financial institutes that are investing heavily in technology to improve performance, get more investments, garner partnership opportunities and overcome competitive threats are slowly entering the fintech league.
Fintech as an industry largely impacted by technology companies: technology companies that offer assistance to improve financial services in existing platforms and monetise current user data are slowly turning out to be major fintech players. These companies have very high level of engagement with their users, giving them the advantage of customer acquisition and cost efficiency as compared to other firms.
Fintech as infrastructure provider: companies that are selling services to financial companies to assist them in digitizing their technology stacks and enhance their customer experience and risk management are forming a major chunk of the fintech market.
The future of fintech will develop in different ways for these different types of fintech models and they will pave their way up through different types of obstacles. For example, while startups will grapple with customer acquisition costs, the infrastructure providers will succeed or fail based on their technical capabilities. While financial institutions will face hurdles related to skill and organization as well as investing in technology, the big technology players will be faced with regulatory challenges.
The fintech market will be mainly dominated by these four types of players in the coming years. While these fintech models rule the financial sector, they will also be instrumental in shaping up the future trends of the global fintech market. There will be regional players who will play a big role in the coming years.