Introduction to Fintech

What is Fintech?

Fintech is financial technology. It is the development of technology and innovation that strives to compete with traditional financial techniques in the delivery of its financial services.

How does the Government encourage innovation?

The Government instructs the Financial Conduct Authority to induce innovation. The FCA hence attempts to make the city more competitive by working with start-up businesses through their ‘Sandbox’ scheme. Small start-ups are assigned a regulator that:

• Addresses regulatory issues
• Creates new products
• Creates new services

By doing so, consumers benefit in the long-run due to greater choice and higher quality of products/services. This increase in competitiveness therefore benefits the economy overall.

How can Fintech be used to offset risk and uncertainty?

During financial transactions, generally one party is subject to greater material knowledge than the other, creating an asymmetry of information. This is evident in the example above as the investments made into start-ups may not work out well. Hence, there is a certain risk and uncertainty associated. Fintech aims to tackle these hurdles. Examples include:

1. Trip Advisor – Dramatically changed the way the travel industry, hotels and restaurants operate. Users can share information with each other digitally when comparing and critiquing certain places. Businesses are forced to be efficient as they know bad reviews will be posted deterring future business, which can be damaging
2. Prodigy Finance – Provide loans to post-graduate students to study at a higher level. These people would generally be rejected a loan due to their absent credit scores. However, Prodigy Finance realised they are most willing to pay back and generally have successful careers in the future, mitigating that potential risk of defaulting on loans.

The same case can be made for young drivers. However, with the introduction of ‘The Box’ which records speed and driving decisions, it creates certainty on behalf of the insurance company.

What are some examples of Fintech?

Prop-tech is a subset of Fintech and is tailored to the real-estate market. It uses information technology to guide individuals and companies with their research, buying, selling and management of real-estate.

Similarly, Insurtech focuses on the Insurance Industry and is a trillion-dollar industry. Both boost the economy. In 2018 alone, there was over a hundred billion dollars invested globally in Fintech, a lot of it in China and in the US.