Fintech: Fact and Fiction

Time to separate the fintech fictions from the fintech facts.

This guest article was written by Ruzbeh Bacha who is the CEO and Founder of CityFALCON.

It’s an exciting time to be in the fintech landscape. People love to talk about fintech as the next big thing, and as time goes on we’ll have more and more examples of fintech companies hitting it big.

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With this excitement though, there has been some misinformation and fear shared in the community and among observers.

It’s understandable; fintech as a sector is new, and in some ways untested, but people understand the possible gains to be made by innovating the financial services industry. Fintech is a force, and we’re only just beginning to feel its effects.

What’s needed is a definitive way to separate the fintech fictions from the facts.

The Fiction: ‘the fintech bubble’

Anyone who remembers the dot com bubble smells the same stench coming off all the new fintech companies. It’s a bubble, ready to burst, and will do so soon.

The Facts:

This may be one of the most widely propagated myths around fintech that carries absolutely zero merit. Fintech is too broad to suffer the same kind of burst as the dot com bubble. Plus, even when the sector is in its infancy, there have already been a slew of unicorn start-ups, and some of those have gone public, creating further legitimacy for the sector.

the true potential of innovation in the financial sector is just beginning to bloom

Though alarmists are screaming about a bubble now, they underestimate the amount of disruption that can happen in the financial services industry.

Banks around the world have held a monopoly on the financial services, and even with the rise of fintech, their business model has hardly innovated (yet).

There are billions of dollars exchanged and shared through traditional means, and while fintech has had a substantial rise already, the true potential of innovation in the financial sector is just beginning to bloom. 

The Fiction: ‘fintech is at war with banks’

Taking on the banks is a bad idea. With a war chest that is equal to roughly infinity, any company looking to eat into the market shares of these centuries-old institutions is going to disrupt the market to a fault, or just fail. 

The Facts:

While some services traditionally provided by banks will probably be taken over entirely by fintech companies (think TransferWise), banks will continue to play a role in finances for the foreseeable future. While the emergence of fintech looks like it spells trouble for banks, what’s most likely is a shared success through partnerships.

Some of the heaviest investments in the biggest fintech players to date have been made by banks. Banks have two major reasons to do this:

what’s most likely is a shared success through partnerships

First, their customers will demand it. As fintech companies simplify and demystify the financial services industry, banks will have to adapt and take on new partners to think in different ways.

Second, banks like every other service, want to attract more customers and provide a better service than competitors. With fintech here to stay, forward thinking banks know that the future of their entire industry is the hands of some of these start-ups. Banks, like consumers, have a vested interest in the success of fintech companies, even though there will be growing pains.

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The Fiction: ‘fintech is dangerous!’

The traditional players in the financial services industry have the expertise to keep investments and funds safe. These new-fangled start-ups are going to be taken down by hackers, and all those who use them will be out thousands of dollars. The traditional methods, however inefficient or outdated, are the safest bet.

The Facts:

It’s true that with new technology comes new risks. But people don’t need to look further back than 2008 for a reminder that bad management and shortsighted thinking can get people into serious trouble with traditional financial services.

As for the threats of hackers, or other digital devilments, those are very real. The developers of fintech companies know this however, and security will be paramount for fintech companies. Within the fintech community there are regular hackathons and summits devoted to this very issue. Not out of altruism, but out of a sense of self preservation.

security will be paramount for fintech companies

The only way a fintech start-up will maintain success is if it invests in proper security, and continues to invest to stay one step ahead of the threats.

These new kinds of threats may turn many consumers off of fintech in the early stages, but companies collecting personal data has become as common as leaves on trees. Google, Facebook, Amazon, are all companies that people are comfortable sharing themselves with.

It won’t be long until the average consumer will feel comfortable sharing financial information with an institution other than their old bank.

The Fiction: ‘the great fintech extinction’

The fintech space is bloated because ‘fintech’ has become a hot term in the investment world and people are throwing money at companies that won’t survive. Once the sector has to deal with some economic turbulence, 90 percent of these companies will fold faster than a lawn chair.

The Facts:

Fintech companies are not going anywhere, and the sector as a whole will continue to grow for a very long time. Not only is technology changing, but so are consumers.

Not only is technology changing, but so are consumers

By 2020, more than half of the workforce around the world will be made up of millenials. And, millennials are much more receptive to disruptive fintech, were born in the area of personal computers, and lived through a financial crisis during their formative years.

It’s true that fintech may not grow as quickly as it is now for too long, but it will be decades before we see a significant contraction in new fintech companies. 

The Fiction: ‘the wild fintech west’

Fintech exists in a largely unregulated space, where companies ride around like cowboys, doing whatever they please to whoever they please to do it to. It’s new, and uncharted territory, where no one has written down any rules, so people play the game however they like.

The Facts:

many fintech companies are already in partnerships with banks

As mentioned above, many fintech companies are already in partnerships with banks, and follow the same regulatory guidelines they do.

While it’s true that regulators will inevitably be playing catch up for a few years, but this isn’t cause for alarm.

If anything, it is an opportunity to rethink financial regulations as a whole for many countries, and other countries that already have strict regulations in place will still have to revamp their own regulatory agencies to allow fintech companies to come in and bring all they have to offer to consumers.

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