Monday, 11 june 2018 | Redacción CEU
They have been able to take advantage of the rapid increase experienced in terms of technological innovation, as well as to make the most of digital platforms. Their emergence in the financial field has marked a turning point. They have had such dramatic arrival, that the traditional banking sector has been forced to make a decision between reinventing itself or joining them. Fintech firms, companies that offer different financial products and services through digital media, have an increasing presence in Spain. In fact, this country already occupies the sixth place in the ranking of countries in terms of number of fintech companies. What impact is this growth having on the financial industry? What new trends do these companies bring along with them?
The amount of fintech companies in Spain has almost reached the round number of 300 companies. This industry has experienced a significant growth compared to last year, in particular, up 53% compared to the first quarter. There are 104 new companies that introduce themselves as fintech firms in Spain. Their annual turnover reaches 100 million euros and they employ around 5,000 professionals. Companies in the field believe that by the end of the year 4,500 jobs could be created that are related to the digital finance world.
Although Spain occupies a modest sixth place, in global terms there are already 15,000 fintech companies. Among the countries that are in the podium of this classification we find the United States and United Kingdom -the latter is considered the most "fintech friendly" country-. Of course, this fintech irruption has not gone unnoticed in finance. It took place years ago, but it is now when the first signs of the consolidation of the fintech world in the industry begin to emerge.
Although banking accepted them with some reservations (it is not surprising because a Finnonvating study estimates that 24% of the income of the traditional financial institutions is at risk with their irruption) the relationship between traditional entities and fintech is enhancing as time goes by. Banking has realized that, like other businesses in this era of change, entities also have the urgent need to adapt to the digital world and technological innovations in order to succeed. Clients have changed their behavior patterns. They no longer want to go to the branch office, since they are a click away from meeting their needs instantly. If these entities want to continue attracting them, they need to reinvent themselves, redesign their bet on the online territory and, in some occasions, rely on the fintech companies to achieve it.
On the other hand, these new services and financial products would not be possible either in many occasions without the collaboration with the traditional banking world. Although, at first they seemed destined to fight for their position in the market, they are learning to live together with each other. The latest report of Fintech Innovation and Trends Observatory carried out by Finnonvating defends that both could benefit from this relationship. On the one hand, traditional banking has the experience, knowledge, a high number of clients and financial muscle. On the other hand, these new companies enable the adaptation to new technologies, offer new business models, immediacy, efficiency and a greater flexibility.
The aforementioned report states that a percentage of almost 50% of financial entities already have agreements with fintech companies and 75% collaborate with companies in the traditional sector. It should also be noted that 57.5% of these technological companies are B2B companies and a large part of their target audience is the financial entities themselves for which they design specific financial tools and services. In fact, despite what might seem to be the case a priori, 88.1% of fintech companies perceive banks as collaborators, rather than as competitors.
However, this banking-fintech relationship also has its ups and downs. If something always distances these financial agents is the lack of regulation in the fintech world. As always, the legislation responds slowly to changes. There have also been small advances in the industry like the legislation on Participatory Financing Platforms (PFP) that allows crowdfunding, and the creation of a fintech window in the National Securities Market Commission (CNMV) in order to resolve regulatory doubts in the industry or the possible imminent establishment of a sandbox. In any case, they do not seem to be enough for the banking sector that demands a legal architecture that allows them to compete on equal terms.
The fintech irruption in finance has contributed to the boost in financial inclusion, the personalization of services and the empowerment of clients. They can now decide how and with whom they hire different services and financial products in a matter of seconds. Whether they collaborate with these new technology companies or not, financial entities are under pressure to change their modus operandi in order not to lose their clients. For example, one of the last services offered by banks is the so-called digital onboarding. Thanks to this service, entities manage to reduce hiring times, especially from complicated products such as derivative instruments.
Fintech companies are also favoring blockchain and smart contracts, cloud computing, Big Data and Artificial Intelligence. Thanks to these new technologies, the fintech world now offers new approaches to services such as currency exchange, credit risk management, personal finance, lending, digital identification, payment methods or investment. They have also contributed to the creation of a new financial ecosystem where new inhabitants appear, like Regtech, Insurtech, Wealthtech, Proptech or Neobanks and Challengebanks that promise to have an increasing importance in the near future.
The arrival of fintech has put the client in the spotlight and has favored the revitalization of the industry, the democratization of services and the reduction of time. However, it has also set new challenges like the search of online solutions for the needs related to the mid- and back-office, the avoiding of obstacles in a hyper-accelerated environment, the difficulty in generating trust among customers in the digital environment or the emergence of problems stemming from the growth of the fintech industry in a context with little regulation.
The CEU IAM Business School is holding a conference about "Decentralized Digital Financing and Economy. Blockchain-Fintech" on June 14, an event in which particular emphasis will be placed on the field of digital finance. Different members of the financial and fintech industry will offer their point of view on subjects like financing models, payment methods, blockchain technology, investment platforms or online banking. The registration period has not been closed yet!