What is Fintech?

The fintech market is a dynamic, multidimensional place. But what exactly is fintech?


Fintech, or financial technology, refers to a broad range of technological applications in the financial services industry. Of course, there’s more to the market than a simple definition, so what is fintech?

To start off with, fintech companies are often startups intent on creating disruptive technologies that transform the financial sector through software innovations.

Mobile payments, big data, cryptocurrencies and alternative finance are some of the big buzzwords in the sector today.

In that regard, here’s a (brief) overview to the fintech industry.

What is fintech? Size of the market

The global fintech market raked in approximately $49.7 billion in capital between 2010 and 2015. That reflects a steady increase in investment over the past several years. For example, MARS reported $3 billion in capital investment in 2013 and $6.8 billion in 2014.

A key portion of this investment has come from conventional financial institutions. For instance, banks have spent a projected $17 billion on new technologies in 2015, and this figure is expected to reach $19.9 billion in 2017. The vast majority of this investment is concentrated in the US, which has brought in $31.6 billion in the past five years.

That said, however, 2016 was not kind to the fintech market: in a KPMG 2016 global analysis of investment in fintech, research suggests the amount invested into the fintech market dropped from $46.7 billion to $24.7 billion in 2016.

The research findings further suggest that the Brexit vote, US presidential election and a slowdown in China, among other things, were also contributing factors to the decline in fintech investing.

Still–it isn’t completely bad news for the fintech market, and investors need not fret: the KPMG research notes that with the Payment Service Directive 2 (PSD2) in Europe, together with governments and other regulators committing to open baking, it’s expected that 2017 will bring a global spotlight on the fintech.

What is fintech? Types of investing

So what does fintech look like in practice? It is an incredibly broad market that touches upon anything remotely finance related. From capital formation and equity financing to retail and institutional financial services, fintech is disrupting virtually every aspect of the financial system. However, some of the most vibrant subsectors of Fintech are payments and cryptocurrencies.

What is fintech? Payments

Payments is one of the fastest-growing subsectors of the fintech market. Payments encompass mobile apps that facilitate quicker, easier and more flexible platforms for exchanging funds, in addition to other internet-based platforms that help facilitate the payment process.

For example, companies VersaPay (TSXV:VPY) fall into this category. VersaPay offers an intuitive pay-as-you-go, cloud-based service that offers payment solutions to businesses by streamlining processes and delivering clear, efficient results. TechCrunch anticipates that the next big trend in the payments sector will be efforts to embed transactional efficiency into platforms that currently don’t support sophisticated payments systems— think of big social media sites like LinkedIn (NYSE:LNKD) and Pinterest.

What is fintech? Cryptocurrencies

Cryptocurrencies are another major component of fintech. By definition, cryptocurrencies are digital currencies that rely on encryption technologies to regulate and verify transactions and the creation of new units of currency.

Michael Sonnenshein of Grayscale Investments explained to the Investing News Network that there are more than 500 digital currencies on the market today, but bitcoin has the largest market cap, venture capital and human investment. Sonnenshein described bitcoin as a type of “digital gold” because many investors view bitcoin as a store of value. In fact, the rise of bitcoin has recently posed the question of whether or not it will become its own global currency over the next few years.

Blockchain, the technology underlying bitcoin, is also gaining a following in its own right as financial institutions seek out more opaque and efficient methods of verifying and recording transactions. 

In that regard, while there are indeed a large number of digital currencies, the list includes: Mooncoin, Reddcoin, Dogecoin, Earthcoin, Mazacoin, and Bonus.

Concluding thoughts

Overall, the fintech market is a dynamic, multidimensional place. It’s difficult to place parameters on this market, because new technologies are continually expanding, disrupting and transforming the space. However, rather than scaring investors off, this dynamism should encourage investment. Fintech is a rapidly growing market that presents multitudes of opportunities for brave, tech-savvy investors.

Don’t forget to follow us @INN_Technology for real-time news updates.

This article was originally published on February 1st, 2016.

Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.

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