Financial technology

Financial technology, also known as FinTech, is an industry composed of companies that use new technology and innovation to disrupt the marketplace of traditional financial institutions and intermediaries in the delivery of financial services.[1] Financial technology companies consists of both startups and established financial and technology companies trying to replace or enhance the usage of financial services of incumbent companies.

Definition and key areas

The National Digital Research Centre in Dublin, Ireland, defines financial technology as "innovation in financial services", adding that "the term has started to be used for broader applications of technology in the space – to front-end consumer products, to new entrants competing with existing players, and even to new paradigms such as Bitcoin"[2] or more generically speaking, Blockchain.

FinTech refers to new applications, processes, products or business models in the financial services industry. These solutions can be differentiated in at least five areas.[3]

  1. The banking and insurance sectors are distinguished as potential business sectors. Solutions for the insurance industry are often more specifically named "InsurTech".
  2. The solution with regards to their supported business processes such as financial information, payments, investments, financing, advisory and cross-process support.[4] An example is mobile payment solutions.
  3. The targeted customer segment distinguishes between retail, private and corporate banking as well as life and non-life insurance. An example is telematics-based insurance that calculates the fees based on customer behavior in the area of non-life insurance.
  4. The interaction form can either be business-to-business (B2B), business-to-consumer (B2C) or consumer-to-consumer (C2C). An example is a social trading solutions for C2C.
  5. The solutions vary with regard to their market position. Some, for example, provide complementary services such as personal finance management systems, others focus on competitive solutions such as e.g. peer-to-peer lending.
Sector Business process Customer segment Interaction form Market position
  • Bank
  • Insurer
  • Bank/insurer
  • Non-bank/insurer – bank/insurer-cooperation
  • Non-bank/insurer – bank/insurer-competition

Global investment in financial technology increased more than twelvefold from $930 million in 2008 to more than $12 billion in 2014.[5] The nascent financial technology industry has seen rapid growth over the last few years, according to the office of the Mayor of London. Forty percent of the City of London's workforce is employed in financial and technology services.[6]

In the United States, there are numerous FinTech startups, including Affirm, Betterment, Behalf, Clearwater Analytics, Fundera, IEX, Lending Club,, Nomis Solutions, Plaid, Prosper, Robinhood, SoFi, Square, Stripe, Wealthfront and GreenSky LLC.[7] and DebtBench.

In Europe, $1.5 billion was invested in financial technology companies in 2014, with London-based companies receiving $539 million, Amsterdam-based companies $306 million, and Stockholm-based companies receiving $266 million in investment. After London, Stockholm is the second highest funded city in the EU in the past 10 years. Europe's FinTech deals reached a five-quarter high, rising from 37 in Q4 2015 to 47 in Q1 2016.[8][9]

In the Asia Pacific region, the growth will see a new financial technology hub to be opened in Sydney, in April 2015.[10] There is already a number of strong financial technology players like Tyro Payments and Stockspot in the market and the new hub will help further accelerate the growth of the sector. A financial technology innovation lab is also being launched in Hong Kong to help foster innovation in financial services using technology.[11] A leading online lending platform that operates in Hong Kong and China is WeLab, which has raised the second largest Series B fundraising in FinTech globally.[12] In 2015, the Monetary Authority of Singapore launched an initiative named Fintech and Information Group to draw in start-ups from around the world. It pledged to spend $225 million in the fintech sector over the next five years.[13] A leading online platform that operates in Singapore is Smartkarma, which has raised $4.7 million in funding to expand its investment research platform.[14] and VMoney from the Philippines.

Within the academic community, on the technology side the Financial Data Science Association (FDSA) was founded with its first event organized by members from the artificial intelligence, machine learning, and natural language processing domain. The FDSA aims to build a research community around computer science and investment statistics. On the business side, Wharton FinTech was founded at the Wharton School of the University of Pennsylvania in October 2014 with the objective of connecting academics, innovators, investors, and other thought leaders within the FinTech industry to each other and to the ideas that are reinventing global financial services. The University of Hong Kong Law School in conjunction with the University of New South Wales have published a research paper tracing back the evolution of FinTech and its regulation.[15]

Awards and recognition

Financial magazine Forbes created a list of the leading disrupters in financial technology for its Forbes 2016 global Fintech 50.[16]

A report published in February 2016 by EY commissioned by the UK Treasury compared seven leading FinTech hubs. It ranked California first for 'talent' and 'capital', the United Kingdom first for 'government policy' and New York first for 'demand'.[17]

The role of FinTech in increasing customer satisfaction in financial services was recognised in December 2015, with customer satisfaction of FinTech 8% higher than banking.[18]

Industry context

In the financial advisory sector, established players such as Fidelity Investments have partnered with financial technology startups such as FutureAdvisor (recently acquired by BlackRock), allowing new technology to work within a prominent custodian.[19] Even celebrities including Snoop Dogg, Jared Leto, and Nas are beginning to put their resources into the nascent FinTech space by investing in financial technology startup Robinhood.[20]


Finance is seen as one of the industries most vulnerable to disruption by software because financial services, much like publishing, are made of information rather than concrete goods. In particular blockchains have the potential to restructure the cost of transacting in a financial system.[21] While finance has been shielded by regulation until now, and weathered the dot-com boom without major upheaval, a new wave of startups is increasingly "disaggregating" global banks.[22] However, aggressive enforcement of the Bank Secrecy Act and money transmission regulations represents an ongoing threat to FinTech companies.[23]


In addition to established competitors, FinTech companies often face doubts from financial regulators.[24] Data security is another issue regulators are concerned about because of the threat of hacking as well as the need to protect sensitive consumer and corporate financial data.[25] Any data breach, no matter how small, can ruin a FinTech company's reputation.[26] The online financial sector is also an increasing target of distributed denial of service extortion attacks.[27] Marketing is another challenge for most FinTech companies as they are often outspent by larger rivals.[28] This security challenge is also faced by historical bank companies since they do offer Internet connected customer services.[29]

References and notes

  1. Infinite Financial Intermediation, 50 Wake Forest Law Review 643 (2015)
  2. "So what is FinTech?". National Digital Research Centre. March 2014. Retrieved November 26, 2014.
  3. Alt, R., Puschmann, T. (2012). The rise of customer-oriented banking – electronic markets are paving the way for change in the financial industry. Electronic Markets, 22(4), 203–2015.
  4. "FinTech Innovation Labs eligibility criteria". Accenture. Retrieved November 26, 2014.
  5. "The Boom in Global Fintech Investment" (PDF). Accenture. 2014. Retrieved December 9, 2014.
  6. "What is FinTech and why does it matter to all entrepreneurs?". Hot Topics. July 2014. Retrieved December 9, 2014.
  7. Shin, Laura. "The Fintech 50 – In Photos: Fintech 50: The Future Of Your Money". Forbes. Retrieved 2016-05-16.
  8. "Stockholm FinTech: An overview of the FinTech sector in the greater Stockholm Region". Stockholm Business Region. June 2015. Retrieved July 12, 2015.
  9. "Fintech Investments Skyrocket in 2016– Report". Retrieved July 12, 2016.
  10. "Sydney FinTech hub based on London's Level39 coming next April". BRW. November 2014. Retrieved November 26, 2014.
  11. "FinTech Innovation Lab in Hong Kong Launches With Eight Firms". Forbes. February 2015. Retrieved February 9, 2015.
  13. "Fintech – the next frontier for Hong Kong's battle with Singapore?". Retrieved 2016-09-26.
  14. hermes (2016-06-08). "Start Singapore: Financial research firm raises $6.4m to expand". Retrieved 2016-09-26.
  15. "The Evolution of FinTech: A New post Crisis Paradigm?". Douglas W. Arner, Janos Barberis, Ross P. Buckley. October 2015. Retrieved October 26, 2015.
  16. Samantha Sharf (December 9, 2015). "The Forbes Fintech50". Forbes. Retrieved 2015-12-10.
  17. "An evaluation of the international FinTech sector" (PDF). EY. February 24, 2016. Retrieved February 25, 2016.
  18. "Customer Insight in Financial Services". Smart Money People. Retrieved May 22, 2016.
  19. "Fidelity Investments Forges Alliance With Low-Cost Player". The New York Times. October 2014.
  20. "Nas, Snoop Dogg Bet Big on Robinhood App". Black Enterprise. September 2014.
  21. Tasca, Paolo; Tomaso Aste; Loriana Pelizzon; Nicolas Perony (2016). Banking Beyond Banks and Money: A Guide to Banking Services in the Twenty-First Century. Springer. p. 215. ISBN 9783319424484. Retrieved 16 November 2016.
  22. "How FutureAdvisor plans to shake up wealth management". Fortune. May 2014.
  23. "Criminalizing Free Enterprise: The Bank Secrecy Act and the Cryptocurrency Revolution". Westlaw's Computer & Internet Journal. July 2, 2015.
  24. "Old Laws, New Models". Taylor Wessing. October 2014.
  25. "Protect Your Assets: Cybersecurity + FinTech". Wharton Fintech. March 2015.
  26. "Financial Startups Reimagine Banking, but Security Still Paramount". Cloudbric. July 10, 2015. Retrieved September 15, 2015.
  27. "Who's Behind DDoS Attacks and How Can You Protect Your Website?". Cloudbric. September 10, 2015. Retrieved September 15, 2015.
  28. "4 Rules for Late Stage FinTech Marketing". North Point Partners. July 2015.
  29. "Who lies behind the latest cyber attacks on JPMorgan Chase?". The Economist. August 28, 2014.
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