Wikipedia describes FinTech as: Financial technology, also known as FinTech, is a line of business based on using software to provide financial services. Financial technology companies are generally startups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software. Global investment in financial technology more than tripled to $4 billion in 2013 from $930 million in 2008. The nascent financial technology industry has seen rapid growth over the last few years, according to the office of the Mayor of London.
So FinTech may or may not have been born alongside the crowdfunding phenomenon but the dates work and no one can deny that disruptive trends grow faster when hand in hand with larger overriding developments and so it may be that FinTech starts to break out as one of the children of crowdfunding ready to grow up and fulfil its destiny.
In a recent Financial Times article on the subject “McKinsey warns banks on earnings threat from technology” FT talks about the digital revolution preparing to wipe out two-thirds of the banking sector earnings. According to FT the McKinsey benchmark global banking annual review speaks to a “high –stakes struggle” to defend a business model. The article goes on to mention sectors that will be affected such as non-mortgage retail lending, credit card and car loans, payment processing, SME enterprise lending, wealth management and mortgages.
The article goes on to quote Philipp Harle, a co-author of the report “The most significant impact we see is in price erosion as technology companies allow delivery of financial services at a fraction of the cost”. To me this now sounds a lot like crowdfunding in the macro sense, startups, SMEs and others designing, producing and implementing smarter, more efficient and cost effective tools disrupting industries. It also tells me that the process overall is doing very well thank you very much – consolidation, specialization and vertical growth and development are healthy evolutions of business trends.
FinTech makes perfect sense and there are many verticals like this that will break out and grow in of themselves. I am not predicting a divorce from Crowdfunding which is estimated to have reached over $16 billion in 2014 and projected to grow in excess of 100% in 2015, but rather the opportunity for models and technologies developed within the crowdfunding ecosystem to participate and disrupt additional significant markets. The McKinsey report goes on to estimate banks revenues from some of these technologies at $1.75 trillion.
This week we saw a clear example of this, GrowVC which is one of the crowdfunding pioneers and leaders announced the sale of its equity crowdfunding service StartupCrowdfunding.com. Jouko Ahvenainen, Grow VC Group Chairman and Co-founder commented “For Grow VC Group this is an important step to execute our strategy and concentrate resources on the digital finance where a real disruption is underway for the entire finance industry and our position is strong to be one of engines for change.” And Ahvenainen adds “We focus on business models that are truly global and, for example, work then with local partners that can offer services locally to consumers.”