Most of us already use fintech every day without thinking twice. Each time we tap-and-go with Apple Pay or impulse buy late at night through PayPal, we engage with fintech platforms.
Below we dig deeper into the types of fintech and how it is changing finance for businesses and consumers.
Fintech = Financial Technology
Fintech has been around a lot longer than most think and can be traced back to the first transatlantic cable in 1866, which lay the grounds for financial globalisation.
Fintech, as we know it today, gained traction in the early 2000s with the dot.com bubble. By 2010 flip phones were out of fashion and the age of smartphones began, catapulting the growth of fintech companies.
By 2020, the Australian fintech market was valued at more than $4 billion, with payments, wallets and supply chain services comprising 30% of the landscape. Lending focused fintech businesses were a close second, making up 29% of Australian fintech companies.
The business of Fintech
Financial technology businesses are commonly categorised as B2B (business to business) or B2C (business to consumer).
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B2B (Business to Business) fintech
B2B fintech companies provide services directly to other businesses, including accounting software, point of sale methods, peer-to-peer lending, payroll systems, and online banking. Platforms like Square, AfterPay, Lending Club and Society One are leading players in the B2B fintech market.
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B2C (Business to Consumer) fintech
B2C fintech companies provide services directly to consumers. For example, 86 400, an Australian app-based Neobank launched in 2019, allowed consumers to bypass the big four banks with streamlined systems and competitive interest rates, before being sold to NAB and merged into UBank in 2021. WLTH, one of the latest Australian fintech to the stage, offers B2C home loans and B2B bespoke lending solutions using a digital application process. Money transfer apps, personal finance management tools and automated investment platforms also fall under the umbrella of B2C fintech.
What are the main benefits?
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Fintech is Fast
Financial technology offers the modern customer service experience that we have grown to expect. Gone are the days of waiting in line at the bank to deposit a cheque. Fintech has transformed banking into a 24/7 service with online account access, instant transactions and fast consultations. This instant access to information can help improve financial literacy and overall personal economic wellbeing.
Today, most traditional banks offer some form of fintech service through online banking apps. Others have moved to embrace technology to provide customers with more support and stay competitive in the evolving digital market. Macquarie and Commbank have focused on developing apps to allow users to open accounts online, track spending, create budgets and access financial support without visiting a brick and mortar branch.
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Fintech helps improve Financial Literacy
Around 45% of Australians are financially illiterate, disproportionally affecting women and young people. Access to financial technology provides a crucial stepping stone for those interested in improving their financial literacy through streamlined access to information. Fintech allows a real-time overview of financial health, enabling consumers to budget better, monitor investments and avoid overspending.
Fintech companies can streamline complex financial processes through automated machine learning, algorithms and appealing design techniques. Raiz is an Australian micro-investing app that allows consumers to choose from customisable portfolios based on values and financial goals. Raiz improves financial literacy by letting people dip their toes into the wide world of investing.
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Fintech is Cheaper
Big banks and traditional financial institutions have to grapple with the overhead costs of real estate, staffing and physical assets. Fintech companies typically operate entirely online, meaning you can’t walk into a branch of WLTH and speak to an adviser. Instead, assistance can be reached through telephone and online forms. As a result, the administrative costs of fintech companies are lower and more money stays in your metaphorical pocket.
Is fintech safe?
Fintech is seen as a new and quickly evolving industry with less regulation than traditional financial services and banking institutions. Therefore using fintech platforms is sometimes considered riskier. Cyber security also poses a concern for consumers and businesses in the fintech industry.
Despite this perception, the impact of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has had a positive effect on fintech companies through new regulations. ASIC has been swift to implement new regulatory guidance and amend existing legislation to help businesses understand their obligations and protect consumers. Customer-focused fintech businesses, unburdened with legacy infrastructure, have responded quickly to new regulations and improved upon security measures.
Fintech & SME lending
The fintech boom is good news for SMEs. Fintech companies and neo-lenders continue to play a role in helping these businesses with access to better financial tools and resources.
A word of caution for small businesses who seek short-term funding via fintech platforms that claim 24-hour approval times. We recommend readers review all fees, terms and conditions thoroughly and seek advice from an experienced financial advisor before going ahead. As a first step, a business review may show where funds can be freed within the business, sometimes replacing the need for a high-interest or factor-rate loan.
Fintech & Regional Australia
Regional Australian small businesses experienced rapid growth during and post-COVID compared to metropolitan SMEs as people flocked to the countryside to escape lockdowns. There was a reported 15.8% increase in regional small business registrations in 2020. The urban exodus coupled with an expansion of fintech services provided regional areas with resources to grow and sustain small businesses.
Fintech has provided rural and regional Australians access to lending opportunities, financial management tools and remote-based talent pools in the post-covid economic recovery effort. In 2020, B2B fintech company Square reported a 259% increase in transactions across regional Australia since 2019 compared to 178% for metro regions.
The future of fintech
Fintech companies and traditional financial institutions have adapting to meet the needs of an accelerated digital lifestyle. The growth potential in the fintech market as consumer habits continue to respond favourably will see increased acceptance of day-to-day digital transactions and banking. As the death of cash looms closer, fintech innovations will find ways to fill the gap.
The team at MCP Financial Services has specialised expertise in supporting your business and personal finance requirements.
Disclaimer
The information in this article is general information only. It is not intended to be a recommendation or constitutes advice.