America 2.0 Explained: Fintech
Fintech, short for financial technology, is tech that automates and improves on monetary transactions and financial services, largely through mobile or digital applications.
Think of it as the next evolution of banking, credit, printed money and coins.
Everyone from consumers to business owners to entire industries have embraced fintech because it offers a better, safer and cheaper way to manage finances.
Fintech increasingly gives big banks and investment services a run for their money. It’s also been embraced in a big way by the largest U.S. generation in history — millennials.
What Is Fintech?
In general, fintech applies to any innovation in how people do business involving monetary transactions.
The earliest forms of fintech over the past 20 years were propriety devices used in back-end bookkeeping systems of established financial institutions.
But as the Internet of Things took off, more consumer-oriented services, retail operations and business models have embraced it.
As a result, fintech’s now in use in retail stores, banking, fundraising efforts, educational services, nonprofit organizations and investment management.
This explosive growth is likely due to the popularity of internet-enabled smartphones and tablets expanding its applications beyond computer-to-computer transactions.
It encompasses everything from money transfers and mobile check deposits, to making retail or online purchases, to raising money for a business startup, to managing investments without human assistance.
Fintech also includes bitcoin and other cryptocurrencies, as well as digital money apps such as Apple Pay, PayPal, Venmo and Square.
About one in three American consumers now utilize at least two or more fintech services and those numbers are growing.
Because fintech is disrupting traditional financial operations, it’s a key mega trend driving what Paul Mampilly calls America 2.0 — or the Fourth Industrial Revolution — which is remaking the way we live, work and play, and transforming countless industries in the U.S. and around the world.
What’s Driving Fintech?
Fintech’s growth is driven by three primary factors:
- Cryptocurrencies: Fintech’s fortunes are closely connected to the skyrocketing popularity of cryptocurrencies, such as bitcoin, and blockchain technologies that provide a safe, decentralized platform for them.
Bitcoin stock has skyrocketed since January 2019, going from $3,674 in April 2019 to $11,389 in August 2019. And it’s likely to rise higher, with the market capitalization of all cryptocurrencies already around $300 billion and rising.
In many ways, the 2008 recession was a key driver in the rise of cryptocurrencies. Millions of people lost money during the recession, creating a demand for a safer, nontraditional option for monetary transactions that can be tracked and accessed digitally, as opposed to traditional brick-and-mortar banks.
- Mobile devices: Smartphones, tablets and laptops are used for nearly everything these days, and it’s almost hard to imagine how we lived without them.None of these devices would have been able to thrive without the rise of mobile apps and related tech. It also offers a glimpse of where we’re heading with fintech and digital banking services over the next three to five years. According to market research:
- Payment/billing services in the global fintech market will bring in revenues of more than $207 billion by 2023.
- Retail-focused fintech companies and popular payment apps — such as GoUrl, Cayan, Stripe and Amazon Pay — are already starting to elbow out credit cards, checks, ATM cards and even cash for millions of consumers.
- Major technologies — such as artificial intelligence, blockchain and robotic process automation (RPA) — will bring major innovations to fintech. The AI-oriented fintech market alone is projected to expand annually by 21.72% through 2023, followed by blockchain-based fintech companies and RPA.
- Millennials: This generation is the most tech-savvy in U.S. history. Millennials are the first people to grow up with the internet and smartphones, and they’re on track to become the biggest wage earners, buyers and money managers since baby boomers.Millennials are embracing fintech in a big way by changing banking and financial industries in the same way they transformed, including retail, media, music, cable TV, video and phone services.
The 2008 recession sowed deep seeds of doubt around big banks and, for millennials, big banks are synonymous with corruption and greed.
A new study of millennial money habits found that:
- Millennials listed all four big United States banks (Wells Fargo, Bank of America, JPMorgan and Citigroup) in their top 10 least-loved brands.
- 53% don’t think their bank offers anything special.
- 71% would rather go to the dentist than talk with a banker.
- 68% believe the way we access money will be different in five years — 71% believe the way we pay for things will be “totally different.”
- 73% would be more excited about a new financial-services offering from Google, Amazon or Apple than from their own bank.
- 33% don’t believe they need a bank at all.
What Are Some Examples of Fintech?
There are countless examples of how fintech is reshaping the world of money, commerce and financial services, but they all fall into three primary categories: new tech (such as apps) that allow for monetary transactions online, “digital money” (such as bitcoin) which is a blockchain technology-based alternative to cash and the IoT-enabled credit and loan services (which are replacing traditional banking services).
The IoT-enabled apps such as PayPay, Venmo and Square Cash are perhaps the most visible ways that new technology is allowing for easier, cheaper and faster monetary transactions than banking services, credit cards and wire services.
PayPal Holdings Inc. was one of the first companies to capitalize on the digital-money trend, recognizing its appeal to younger Americans.
Today, PayPal has 267 million active consumer accounts — 17% more than just a year ago and a figure the company expects to hit 300 million this year. The average customer uses it at least three times a month.
And about 21 million merchants have PayPal accounts, with roughly half of North American retailers accepting it as a payment method.
PayPal’s mobile payments have skyrocketed over the past six years. Financial reports I’ve seen show company payment totals rising from just over $150 billion in 2012 to $578 billion in 2018. And last year, gross revenues tallied $15.45 billion — twice the company’s 2014 revenues.
That trend is only likely to continue.
But while PayPal’s fortunes are soaring, blockchain technology is poised to boost fintech applications to new heights in the years ahead. Already, blockchain is creating superstar stocks out of bitcoin, lumens and other crypto-currency that use it. Examples:
- Ethereum, a distributed ledger technology, maintains records (financial and otherwise) on a network of shared computers, but has no central ledger. Smart contracts, which utilize computer programs (utilizing blockchain) automatically execute contracts between buyers and sellers.
- Insurtech uses technology to simplify and streamline the insurance industry.
- Regtech helps financial service firms meet industry compliance rules, especially those covering anti-money laundering and “know your customer” protocols which fight fraud.
Cryptocurrency and digital cash such as bitcoin and lumens are becoming the new “digital gold” — offering a safer, readily accessible option for buyers and sellers than cash, credit cards, checks or other payment sources. Bitcoin, in particular, has been on a tear. After hitting bottom in late 2018, at about $3,500, it rose to nearly $14,000 by the end of 2019. Paul Mampilly predicts bitcoin will continue rising, and will hit an all-time high of $50,000 by the end of 2020. By 2025: $250,000.
Which Companies Are at the Center of Fintech?
- PayPal Holdings Inc.
- Square Inc.
- Affirm Inc.
- GreenSky LLC.
- Robinhood Financial LLC.
What Are Fintech’s Global Market Projections?
By 2023, the global fintech market is projected to be worth approximately $305.7 billion — growing more than 22% every year between 2018 and 2023.
In North America alone, the fintech market is projected to be a $80.85 billion industry by 2023. But fintech is growing fastest in the Asia-Pacific region — China, India, Japan, South Korea and Australia — where the market will rise every year by 43.34% over the next four years.
In fact, an index comprised of only 10 publicly traded fintech companies is already outperforming the S&P 500.
Because banks are so invested in implementing technology solutions in their daily operations, fintech is estimated to rise 22.1% every year and hit $305 billion by 2023.