Sourcing and Procurement
Future of payments - Fintechs or Techfins?
Fintech and Techfin - are they two sides of the same coin? Are they combinations of the words “finance” and “technology” that can be used interchangeably? Not exactly, or rather not at all. A deep dive into these two rising sectors in today’s business landscape will give a better understanding of what these sectors stand for and how they will impact our financial ecosystem.
Fintech might sound like a new idea that’s just taken the world by storm. However, it’s been around since the introduction of credit cards in the 1950s and is now a rapidly growing sector. Fintech refers to the industry that uses technological innovations to enhance user-experience in financial services. Fintech companies integrate technological innovations like big data, AI and blockchain with traditional financial services to make them more user friendly, cost-effective, and safe. Interestingly, traditional banks have turned out to be great supporters and adopters of technology as they recognise changing customer requirements and realise that they need to keep innovating to stay relevant. This advancement of technology is perceived in almost every area of finance from payments, loans, and credit scoring to hedge fund management. It has resulted in an entirely new division in regulatory technology called “regtech”, which is designed to address compliance and regulatory issues in the fintech world.
As consumers become more digitally savvy and demanding, mobile banking has become a fact of life. This has also resulted in the rise of Neobanks or digital first banks like Chime, Varo, Fi and Jupiter. These banks do not have any physical presence.
Fintech has revolutionised the way we make payments today. Sending money digitally is now a click of a button. The advancement in cryptocurrency and blockchain technology also can be attributed to fintech. Fintech companies like Robinhood have broken down barriers to investing by using a combination of savings and automated small-dollar investment methods. Machine learning has revolutionised the way we look at data and predict trends. This, in turn, allows all stakeholders (consumers, companies, banks and additional organisations) to make informed investment decisions. While insurance companies have been slow to adopt technology, there has been a marked shift in this recently. The industry has started adopting technology with mobile car insurance and wearables for health insurance to start with. In short, fintechs are companies in the financial sector, which have adopted technological innovations to stay ahead of the game.
Techfins, on the other hand, are technology companies that have now ventured into providing financial services to their clients. Their primary business is not financial services, but they are in the unique position of having a readymade client base and technical resources to be able to easily move into financial services. Some household names that come to mind are Google, Amazon, Facebook, and Apple.
Techfins can get a head start because of some inherent advantages.
- Loyal customer base:
- Access to customer behaviour trends:
- Technological edge:
Technology giants like Google, Facebook, Amazon, and Apple already have a customer base that is easily accessible. Since customers are already on these platforms, it is easy to nudge them to use financial services from the same platform.
Techfin companies have access to a massive amount of customer data that can be used to analyse behaviour, preferences, and trends. For example, Google and Facebook have access to their users' search activities and social preferences. Ecommerce companies like Amazon have access to shopping patterns and payment history. Telecommunication companies like Apple have access to user behaviour, location, and activities. In this way, you can think of techfins as being “sentient” – capable of sensing customer behaviour and promoting value-adding interactions.*
Another obvious advantage that Techfin companies have is their technological edge to innovate faster and more efficiently. Large technological companies have the resources and technological skills to set up platforms that can support a large user base.
Techfins are essentially disruptors that will increase the competition in the ecosystem and drive innovation in the future. The traditional banking and finance sector will have to keep up by going on a digital transformation journey for themselves. More and more banks and insurers are adapting technological innovations or collaborating with Fintech start-ups to ensure that they meet customer expectations and demands. There is no doubt that Fintech and Techfin together are set to transform the way we do business in the future.
*For organizations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organizational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organizations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organizations that are innovating collaboratively for the future.