By redefining what it means to provide and receive a financial service, fintech is disturbing areas once deemed the sole domain of financial and banking institutions, says Peter Tuvey, co-founder of Fleximize, the UK’s first revenue-based finance provider.
Financial technology (fintech) startups are rapidly altering the world in which we live. From investment management and payments, to lending and digital currency, fintech is transforming what it means to receive and provide a financial service.
As one of the fastest growing areas of the British economy, it is generating over £20 billion annually, employs more than 60,000 people, and produces more billion pound-valued startups than any other British sector.
This rapid expansion of fintech shows no sign of curtailing and is now disturbing the sector once considered the sole terrain of traditional financial and banking institutions.
Demand for these flexible financial products has emerged predominantly from tech-savvy millennials who are keen to replicate the likes of Uber and Airbnb in the financial sector, and cut out the middleman.
With the financial service industry having endured a tumultuous decade and public confidence in the sector at an all-time low, it is little wonder that businesses and consumers have jumped on the opportunities being offered by fintech startups.
With Yoyo Wallet, the fastest-growing British mobile payment app, just securing £12m in investment, it’s evident that fintech is an industry that can succeed even in times of economic and political uncertainty.
According to the All-Party Parliamentary Group on FinTech (APPG FinTech), new financial technologies stand to disrupt even the most entrenched, concentrated markets. Referring to examples such as TransferWise and WorldRemit, a recent report from the group demonstrated that fintech provides a “meaningful alternative to… bank[s] when making a payment or moving money across borders and currencies”.
Acknowledging the value of alternative lenders including Fleximize and Funding Circle, it also highlighted how fintech is acting as a “bridge between citizens and the financial services they need and want”.
Offering transparency and diversification, faster settlements and products tailored to changing customer needs, fintech is certainly creating more ways to access finance and generate income.
Digitalisation of financial services, for instance, has enabled greater audit capacity, increased payment transparency and reduced security risk. Access to real-time customer data has likewise facilitated products that are better suited to unique consumer needs.
It is this customer centricity that has played a pivotal role in the increased global adoption of fintech.
EY found that half of consumers worldwide use money transfer and payment services, while a quarter are using fintech for insurance, 20% for savings and investment, and 10% for financial borrowing and planning. Almost a quarter of insurance consumers are also processing transactions or communicating with suppliers online, according to The EY Fintech Adoption Index.
The report indicates that consumers are attracted by the accessibility of different products and services, in addition to the better online experience and more favourable lending rates offered by fintech companies. This is a vital aspect of working towards full financial inclusion to create a fairer and more diverse financial sector.
And in some areas, this has even started to usurp traditional bank lending.
By providing businesses with easy-to-access, flexible business funding, alternative finance is filling the gap left by traditional lenders who are less willing to lend to SMEs in the current economic climate.
Combining cutting-edge technology with less stringent lending criteria, alternative providers can fund businesses in a matter of days – sometimes hours. This can be invaluable for companies that need to plug a temporary cash flow hole, freeing up the necessary funds to purchase stock or land a new contract.
Programmes such as the Bank Referral Scheme and Enterprise Finance Guarantee (EFG) demonstrate the UK government’s recognition of alternative finance, and the benefits that it can bring to SMEs, not to mention the British economy as a whole.
Launched in November 2016, after first being proposed in August 2014, the Bank Referral Scheme has helped connect many small businesses with alternative lenders, while driving awareness of the numerous options that are now available to SMEs when it comes to raising finance.
Nine of the UK’s largest banks agreed to join the scheme, which obliges them to refer any business that they have turned down for funding to three online finance platforms: Funding Xchange, Funding Options and Business Finance Compared. These platforms will then pass on the details to alternative lenders, before acting as the facilitator for any discussion between a business and any lenders interested in lending to them.
Meanwhile, the Enterprise Finance Guarentee which was initially available to banks only, has recently been extended to include alternative finance providers. This is yet another sign that the government is firmly on the side of fintech and a more competitive, forward-thinking financial services sector.
Alternative finance has started to redefine what it means to provide and receive a financial service and – in doing so – is disturbing areas once deemed the sole domain of banking institutions.
This prospect presents a double-edged sword for the UK’s banking industry.
On the one hand, fintech is the most disruptive threat to the traditional financial service industry in its history. On the other, it has the potential to unlock the power of big data internationally and drive further innovation in the sector, which will aid the survival of banks long-term.
According to IDC research, 25% of big banks consequently see fintech firms as potential acquisitions, while 35% would be willing to collaborate.
Unleashing a new era of innovation and competition, the future of fintech is bright. However, with new prototypes being restricted by outmoded and outdated infrastructure, it is essential that we now create a regulatory framework to promote a competitive, inclusive and growing fintech industry.
Launched in 2014, Fleximize offers small business loans from £5,000 to over £1 million, and has supported a wide range of SMEs across the UK. To date, the company has lent over £45 million to businesses in a number of sectors.
Peter Tuvey, Co-Founder, Fleximize
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