What is Fintech and why does it matter?
A few years ago the mention of Financial Technology – or FinTech - was a rare occurrence. Then, in 2001, the now-giant online payments system, Paypal, was established. It brought secure digital payments to consumers with only the need for an e-mail address and without bank sort codes and account numbers when shopping online. A stock market listing enhanced Paypal’s business credibility and FinTech suddenly appeared as a bright spot on the City’s radar.
Now, FinTech regularly garners financial media headlines, but, for many of the business owners we meet the question is still raised:
“what is FinTech, how does it differ from alternative finance (AltFi) and how does it affect my business?”
Whilst the definition of FinTech can vary, it is generally interpreted as “using technology to improve the efficiency or delivery of financial services, at scale.” In the main, this technology takes the form of software development, however, new FinTech hardware is also emerging - such as iZettle card readers which, combined with an iZettle merchant account and mobile app, now allow the very smallest businesses to handle credit card sales. With such dramatic growth in micro-computing, digital currency and business transactions – a far cry from the warehouse-filling computer mainframes that revolutionised the banking system in the 1960’s – the world of consumer and business finance has come a very long way. And that includes business funding and cashflow management. Even with increasingly tight security and legislative constraints, the high street banks continue to exploit the benefits of the digital revolution – using increasingly sophisticated websites and mobile apps to allow businesses and consumers to manage their finances more effectively.
This digital dynamism has also created prefect conditions for the birth and growth of the Alternative Finance sector. The ready availability of new hardware and software systems has allowed the engineering of platforms to support marketplaces or reduce costs in peer-to-peer lending, crowd funding, selective invoice finance and more. Whole processes – from initial business pitch to money in the bank - can be hosted online in a secure environment; borrowers can meet lenders, ask questions, talk to other like-minded investors and pool funds that will benefit the business.
Computer processing power that was once only the preserve of IBM and the big banks, has become available to a much wider base of developers, allowing specialist tech companies to create sophisticated platforms. Will FinTech have an effect on the way SMEs function?
The answer is: it already has in many ways. The exciting prospect is how much further it can go and what new technologies are around the corner, improving the way business owners use finance to manage their business and provide more effective customer interactions. FinTech is also having a profound impact on raising consumer and business confidence in Alternative Finance products, providing the opportunity for AltFi companies to spearhead UK business growth and harness individual investors’ involvement in the process. That means a greater choice of financing options and wider availability for SMEs to gain the funding they need