PUBLISHED: 08 JANUARY 2020 AUTHOR: MOHADESA NAJUMI -APEXX Global Fintech innovation driven by non-bank entities is progressively deconstructing the walls that have long surrounded the traditional financial and banking system and is causing a radical shift. This innovation is gradually expanding access to a broader segment of the population. As the fintech ecosystem matures, banking and financial regulatory regimes are also evolving swiftly. Historically, fintech was local. Outside of cross-border finance, most fintechs remained largely local. If we look at some of the largest players in the industry, their operations remain geographically concentrated in one market. For instance, Square in the U.S. earns 95% of revenue domestically. In the same vein, Ant Financial has 70% of its users coming from inside China. However, things are rapidly changing, and this trend will only accelerate. Globally, a vast army of neobanks are targeting all sorts of consumer and small-business niches. McKinsey estimates that there 5,000 start-ups worldwide offering new and traditional services, up from 2,000 just three years ago. There is no question that neobanks are swiftly emerging as a huge threat to traditional banks. McKinsey also estimates that by 2025 up to 40% of banks’ collective revenue could be at risk from new digital competition. Banks have long been the only option for borrowers, but for those who want to streamline the process, fintech presents another option. Fintech companies are undoubtedly having a moment. The ubiquity of mobile devices has begun to undercut the advantages of physical distribution that banks previously enjoyed. Smartphones enable a new payment paradigm as well as fully personalised customer services. In addition, there has been a massive increase in the availability of widely accessible, globally transparent data, coupled with a significant decrease in the cost of computing power. As a result, more and more fintechs will be global, driven by three mutually reinforcing reasons: an evolution towards regulatory openness, a rise of fintech enablers and a growing global outlook. Few industry combinations are as alluring to investors as finance and technology. When it comes to fintech, the number and services are plentiful. Global investment has exploded in recent years with fintech now making up a multi-billion dollar industry, in particular, investors are turning their attention to new markets. In the first nine months of 2019 venture capitalists poured $2.9 billion into neobanks. What is more, there are some arguing that fintech start-ups may be more ethical or altruistic than legacy banks. This is because neobanks can truly disrupt banking through ethics and accountability. While this argument is bound to be controversial, it rests on a very simple premise: start-ups focus on providing transparency to end customers. In many ways, fintech has levelled the financial playing field for everyday people, giving them access to services previously reserved for the wealthy or individuals of a certain economic stature. Increasingly, regulators are making it more feasible for fintechs to experiment and expand into new markets. By taking a more pragmatic and practical approach, they are allowing innovation to flourish without stifling it, decreasing barriers to launch. For instance, in Europe PSD2 regulation, which standardises how financial institutions must share customer data, is making it simple to expand across markets. At the same time, a range of players are emerging in major markets that provide infrastructure for fintechs to expand. There is no doubt that fintechs have lit up the global banking landscape over the past three to four years. Many fintechs are expanding their offerings beyond their original platform, further increasing the risk to traditional players of losing relationships in areas such as payments, money transfers, and personal loans. By combining modern technology with a laser focus on improving consumer experiences, large and small fintech firms have brought unprecedented changes to the banking industry. The improvements to services across banking have resulted in a huge inflow of outside funding to fintechs and a continued outflow of traditional sources of revenue from legacy banks and credit unions. There is no question that fintech firms have disrupted traditional banking paradigms. More importantly, what was once considered a complex way of managing finance is now used by millions of people globally.

---

Liked what you just read? Subscribe to our newsletter to receive similar content and fintech news straight to your mail box.