Fintech is changing the way consumers interact with financial services and a key area for investors.
Financial technology is shifting the business model away from cost per transaction to monetising data and advertising.
New technologies include peer to peer networks, cryptographic currencies and the blockchain.
Peer to peer lending and crowdfunding are examples of how emerging companies have taken traditional, staid markets that have operated in the same way for decades by the scruff of the neck and shaken them up for the 21st century.
“Emergent fintech is disrupting business models and bypassing existing financial services providers to make huge strides into capturing their markets,” said a spokesman for accounting firm Ernst & Young in a report commissioned by the UK government.
Fintech security is a growth sector
The latest growth area is utilising the blockchain developed to secure cryptographic currency Bitcoin to improve fintech security.
The report points out that although fintech companies have rushed to bring new technologies to market, security has played a subordinate role.
“The connected world has found protecting personal financial details a challenge. Security is often a second focus in the rush to market and we expect significant activity in this sector from new providers,” said the E&Y spokesman.
For investors, fintech is an opportunity that is expected to spawn profitable start-ups in the next decade in London and South-East.
The report pinpoints the region as a fintech hothouse due to easy access to the City and Britain’s developed financial markets.
The four fintech markets
The report splits fintech into four markets –
- Payments – the largest sector worth revenues of £10 billion a year.
- Financial data and analytics – worth £3.8 billion a year. This covers activities such credit references and back office systems for banks and financial institutions.
- Financial software – worth £4.2 billion a year to handle accounting, billing, payments and risk management
- Platforms – a £2 billion a year market providing the software that runs peer-to-peer lending, crowdfunding and personal finance services online
“The government wants to attract more investment into fintech companies, especially those looking to internationalise their business and services,” said the E&Y report.
“Investing in these companies will create jobs and growth as well as strengthen the UK’s position as a world leading financial services destination.”