What recent research says about financial technology (FinTech)[1]
- “Financial technology (FinTech) is recognized as one of the most important innovations in the financial industry and is evolving at a rapid speed”[2].
- “It is reported that FinTech is considered one of the major investment for most competitive financial firms”[3].
- On the growth in FinTech investment “from US$930m in 2008 it grew to US$4.1bn in 2013; it tripled during 2014 alone to US$12.2bn and then nearly doubled in 2015 to US$22.3bn.In 2017, the global funding of FinTech companies stood at US$100.2bn[4].
From the above, it is safe to conclude that:
- FinTech is hot stuff and the FinTech revolution is not just another buzzword.
- There is some serious investment being channelled into FinTech companies, meaning that this novel area is generating a lot of financial and economic value.
Of course, being a new field, waiting to see how things evolve before joining the bandwagon of FinTech investors and customers should seem like a prudent idea, right?
No, not actually.
According to a research done by Mckinsey, digital laggards are doing themselves a disservice, as early adopters (i.e. “those using digital to compete in new ways, and those making digital moves into new industries”) are twice likely to experience exceptional financial growth[5], compared to those waiting for such technologies to become mainstream.
To buttress that, here is some advice from Lawrence Wintermeyer, former CEO of Innovate Finance: “There is more innovation going on outside of an institution’s four walls than inside, and the investment in participating in that innovation is low relative to the risk of not being abreast of the FinTech landscape and players”[6].
The good news is that since you are reading this article on FinTech revolution, there is every chance that you fall into the category of early technology adopters. Or you may just be curious about PUTTRU. Either way, you are on the right path.
An Introduction to PUTTRU (2)
This article is the second in our introductory series on PUTTRU. In the first article we focused on some of your most basic questions and dedicated sections of the article on laying the foundation for more to come. So by now, you know what ‘PUTTRU’ as a word means and why we settled on that name. You also know why we are not your traditional crowdfunding platform (we will be talking more about that here) and everything else from why we exist, what drives us, the customer segment the business will be serving and what you can expect from us moving forward.
If you haven’t read that article, we strongly advise that you spend some time on ‘PUTTRU, the Capital Raising Solution for Africa’s Energy Market’, then come to this one after that. You would understand why when you do so.
The objective of this article is to discuss the Business Model Environment of PUTTRU. This would enable you understand why PUTTRU is designed as a FinTech solution, among others. First, the article will start with a brief background on FinTech. We will cover the different business models adopted by FinTech companies and where exactly PUTTRU falls into, the factors that are driving the FinTech revolution and how this is playing out in the African context. We will then discuss the how and why PUTTRU is uniquely tailored to the African context.
A brief background on FinTech
Like a lot of digital innovations, FinTech is a product of the internet revolution which gave birth to electronic finance (e-finance), etc. But the real force behind its existence is the financial crises of 2008[7]. With advances in e-finance, data mining and analytics, artificial intelligences, etc., technology startups had at their disposal a plethora of tried and tested tools to piggyback on and harness the opportunities paved by the financial crises, i.e. a growing number of customers seeking personalized services[8].
It seems that customers of financial services want to have the autonomy of picking and choosing what they want rather than being in a position of merely taking what is given to them. Furthermore, customers want their service provider to know them – what they like and how they like it, as well as to make it available when they need it. Hence the diversity in FinTech business models, which are designed to give customers the flexibility they crave. And because the service provider focuses on specific areas, they are able to provide these services along with that personal touch driven by big data analytics and machine learning.
Ioannis Anagnostopoulos[9] explains that the inability of traditional financial institutions to indepthly understand their customers and provide tailored solutions to their needs lies some of the attractiveness of FinTech as alternative financial service providers.
Of course, no one is making the argument that FinTech will takeover traditional financial institutions anytime soon. But, rather, that this change in customer behaviour is creating a niche where FinTech companies are designed to work better in. In fact what we see is stronger collaboration between traditional financial institutions and FinTech companies, where the former is increasingly backing these innovative companies with funding[10], and not a compete-to-take-over kind of relationship.
The different shapes and sizes of FinTech companies
Life may be like a box of chocolates but with FinTech companies you know exactly what you are getting.
These specialized service providers tailor their business operations to, individually, meet a range of services from payment, insurance, wealth management, crowdfunding, peer-to-peer (P2P) lending, to capital market related services.
- Payment
As the name implies, companies[11] that adopt this business model provide services that focus on facilitating payment transactions. Compared to others, such businesses are able to scale rapidly at a lower customer acquisition costs, mostly because their customer base is wider compared to others (payment is likely involved in any transaction involving buying and selling).
- Insurance
Companies in this space are concerned with systematically creating an insurance package that is tailored to the risk exposure of insuring a specific client, through a build-up of data and the client base.
- Wealth management
Fancy taking advice from a robot? FinTech companies in this area provide robo-advisor services that employ algorithms, based on your pre-defined preferences, to suggest investment options for your portfolio, at a reduced costs.
- Crowdfunding
One of the ever-growing forms of the sharing economy, crowdfunding platforms, acting as facilitators, connects project initiators or entrepreneurs to a community of individuals who support their cause (or project) with funds, etc.
These companies usually operate through three business models, namely:
- Reward-based crowding: here fund seekers establish an interest rate for the debt they are seeking with the guarantee that the funds provided to them will be repaid on the due date. In the event that they receive the funds they seek the funder is rewarded with a gift.
- Donation-based crowdfunding: this business model is usually used by charities looking to raise funds for a cause. In such situations the donors are given non-monetary forms of recognition as compensation.
- Equity-based crowdfunding: here entrepreneurs receive financial support by offering up a portion of their company’s equity to their funders.
- P2P Lending
P2P lending platforms support individuals and businesses by creating a space where either of these group of entities could borrow from or lend to each other. Unlike crowdfunding platforms where the goal is fund raising for a project or cause, P2P lending platforms enable individuals or entrepreneurs to access affordable loans to service already existing debts.
- Capital market
A new area opening up for FinTech companies is the capital market space. Although most people are more familiar with the aforementioned FinTech businesses, the capital market is increasingly seeing digital disruptions driven by startup companies, many of who come from an accomplished background in the traditional capital market industry
Capital market-type FinTech companies cover a broad range of services provided by traditional financial institutions. These include: investment, foreign exchange, trading, risk management and research[12].
End of Part 1: A summary
I hope you have enjoyed reading this article as much as I have enjoyed writing it. For one, it has been my pleasure to discuss in this detail the different forms FinTech could take, considering that once the word ‘FinTech’ is mentioned people immediately think about payment services. Secondly, we introduced ‘Capital Market’, a new area for FinTech. However, one where FinTech activities are steadily on the rise. Thirdly, our short history lesson on the birth of FinTech and its growth (especially concerning investment) as well as what experts are saying concerning the future of this field should have left some kind of impression on you.
In Part 2 of this article on ‘Is Africa’s energy sector ready to capitalize on the financial technology revolution?’ we will be discussing where PUTTRU fits into, with regards to FinTech business models (you may have already concluded where). Also, we will be looking at the global megatrends driving and sustaining the need for FinTech solutions specific to the area PUTTRU operates in and how these trends are playing out on the African continent. In general, we will be presenting information that demonstrates how PUTTRU is designed to address a development need on the continent by being shaped to respond to those gaps.
PART 2: Is Africa’s energy sector ready to capitalize on the financial technology revolution? Why PUTTRU, why now?
[1] Definition of FinTech – “organizations that are combining innovative business models and technology to enable, enhance and disrupt the traditional financial services industry” (EY, 2016): Capital Markets: Innovation and the FinTech landscape. Available here
[2] Lee and Shin (2018). FinTech: Ecosystem, business models, investment decisions, and challenges. Business Horizon (2018) 61, 35 -46.
[3] Wigglesworth (2016), cited in Gai et. al., (2018). A survey on FinTech. Journal of Network and Computer Applications 103 (2018) 262 – 273.
[4] Athwal (2016), cited in Anagnostopoulos (2018). FinTech and regtech: Impact on regulators and banks. Journal of Economics and Business 100 (2018) 7- 25.
[5] McKinsey (2018). The new enterprise DNA: How advanced analytics, technologies, and design are redefining the capabilities you need. McKinsey Quarterly (2018), Number 4, Page 46. Available here
[6] EY (2016)
[7] See note 1.
[8] Ibid and note 3.
[9] Note 3.
[10] See note 1.
[11] Examples of FinTech companies in this category include: mobile wallets, peer-to-peer (P2P) mobile payments (e.g. Paym- UK), foreign exchange and remittances (e.g. WeSwap – U.K), real-time payments (e.g. PayPal – U.S) and digital currency solutions (e.g. Bitcoin)[11]. See: The Bank of New York Mellon Corporation (2015). Innovation in Payments: The future is FinTech. Available here.
[12] Lee and Shin (2018). See note 1.
