One of the misconceptions many people who are not familiar with financial technology (Fintech) have is that you need to be a computer programming and finance genius to build a Fintech business. The reality is that most financial apps can be built by developers of average ability with a good understanding of the workings of the financial sector.
The Fintech sector has been booming for over a decade and we have only scratched the surface when it comes to opportunities to build successful fintech businesses.
Fintech disruption has been led by young entrepreneurs
Fintech is an industry where young entrepreneurs with little capital have been building billion-dollar businesses over the past decade. We regularly hear such success stories coming from Asia, Europe or Africa.
Earlier this year, Fintech startup Ramp raised $300M at a $3.9B valuation in a series C round, less than 2 years after its inception. That's more than double the $1.6 billion New York-based Ramp was valued at in the previous year.
Wave, a U.S. and Senegal-based mobile money provider, raised Africa's largest series A round of funding just a few weeks ago, a record $200 million at a $1.7 billion valuation.
Fintech Investments Have Hit $91.5 Billion In 2021
There is a proven appetite in the venture capital community for investments in Fintech startups. Many startups founded by young people with little to no experience in financial services have received record amounts of money to scale after showing initial traction.
The rationale behind these huge investments is not necessarily to sustain startups financially until they are profitable, but also to be able to sell them to bigger competitors at a huge profit.
According to the research by IndustryARC’s market analyst, the Fintech market volume exceeded $150 billion last year and continues to grow.
Another common misconception is that big banks are threatened by Fintech companies and will eventually be replaced. Bill gates famously said: "Banking is necessary, banks are not".
The reality is that Fintech startups are enabled by the APIs and support services provided by traditional banks. Government institutions have more trust in startup businesses when they operate in synergy with banks.
Fintech is therefore, or at least for now, a win-win scenario for both financial technology companies and traditional players in banking, insurance or wealth management.
What is Fintech?
Fintech, short for Financial Technology, is the practice of using technology to enhance accessibility to financial services and offer better solutions to customers' financial needs.
Fintech is the innovative use of technology in the delivery of financial services such as mobile money banking, peer-to-peer lending, money transfer, small loans, insurance etc.
Fintech is a multi-billion dollar financial industry that has been growing exponentially in the past decade.
If you have transferred money between mobile phones or applied for a loan with a smartphone app, you are one of the many customers around the world who have fueled the exponential growth of Fintech.
We have only scratched the surface, however. Fintech is still in its infancy and the opportunities left to exploit are huge for ambitious entrepreneurs.
Fintech companies worth billions of dollars still focus on a very specific area and try to operate in a way that is streamlined and user-friendly. This leaves many opportunities for new services focused on solving specific problems or targeting a new demographic with a successful service.
What do you need to know to start a Fintech startup?
The first steps to take on your journey to Fintech mastery is to learn about the regulations and APIs which allow applications to connect to bank accounts and improve on the services already offered by financial institutions.
Which parts of the world offers the best opportunities to start a Fintech business?
The Fintech revolution still offers huge potential in every country. While there is more competition in countries which have encouraged open banking for the longest period, Fintech companies tend to be highly specialized and there are still many solutions to develop for overlooked problems or to simplify access to complex services.
A small share of the Fintech market in an advanced economy can be worth millions of dollars due to strong investors appetite for investments in Fintech and the huge potential for growth over the coming decades.
One of the strengths of Fintech is to bring financial services to people who used to be mostly in a cash based economy.
By transforming a smartphone into a bank account Fintech services increase access to finance, offer security of savings, allow money to move faster and make trading easier. This increase in economic activities creates opportunities and helps people escape the poverty trap.
Thus, some of the biggest opportunities lie in countries which are introducing open banking and creating a business environment where Fintech startups can thrive.
Some developing countries like Kenya have been pioneers in the Fintech revolution by giving access to banking services to section of their population without a bank account.
M-pesa, a mobile money transfer service, is the success story which made Fintech a staple of life in Kenya. More than 96% of kenyan households now use M-pesa to pay for bills, groceries, transfer money and borrow money. M-Pesa is accessible with mobile phone and uses USSD (text messages) as a medium of communication.
The widespread use of M-pesa has lifted at least 2% of Kenya's population of out extreme poverty.
A growing proportion of the kenyan population is using smartphones and can access more sophisticated financial services apps.
Personal loans apps have gained a lot of popularity in recent years and there are still many types of 3rd party financial services to develop on a mobile platform: car insurance, life insurance, funeral insurance, savings account, investment management etc.
Even in the most advanced economies there are still huge opportunities. It is estimated that by 2022 only 65% of Americans will be using digital banking.
Fintech is one of the industries where you can build a multimillion dollar business with little to no money if you can learn to find gaps in a given market and build financial applications for smartphones.
Fintech disruption has been led not by traditional bankers but by designers, programmers and creative thinkers. What are you waiting for?
What are the most common services offered by Fintech startups?
- Point of sale technology devices to accept payments (Square)
- Services that facilitate money transfer between people and businesses (Stripe)
- Digital payment and lending businesses, including mobile wallets (Paypal, Venmo)
- Peer to Peer (P2P) payments (AliPay)
- Alternative lending
- Cryptocurrencies (BitCoin)
- Robo-advisors
- Wealth management
- Online banking
- Insurance
- Credit reference
What new technologies are likely to impact FinTech?
Some of the new technologies which Fintech startups can leverage to create new services are Artificial Intelligence or Deep Learning, Machine learning, IoT devices, blockchain technology and big data.
The obvious opportunities in the FinTech sector, of course, are the digitization of financial services that can perform well using simple mobile apps, the Internet and Cloud servers.
