How did fintech become the most “fashionable” sector of banking and IT?
Last week in Kiev there was a very important event under the name «Forum on Financial Inclusion», which, as in the past year, profilely spoke about how to involve the maximum number of Ukrainians in financial institutions.
This question has not only a noble goal or a desire for innovation. The growth of deposit portfolios, the credit market, the use of non-cash instruments and the parallel unshadowing of incomes entail the growth of the country’s GDP and general economic development. Positive changes within the country give more investment that triggers the cycle again and again, driving our economy.
All this is very nice in words, but extremely difficult in practice. And not because our compatriots don’t trust Ukrainian banks, because they are taught by bitter experience. Not because the Soviet tradition to keep money using a conditional “mattress” and hoping to “sit out” is still alive. For more than 20 years, Ukraine has not developed an adequate culture of using the financial institutions — but, fortunately, it’s being formed now, and many will envy the pace of its development. The main reason for this is the rapid growth of financial technologies in the last 5–7 years, which has made the fintech industry not only advanced in value, but also “fashionable” in status. I will try to tell you how it happened — and partly basing on my experience of professional development in fintech.
What is the global difference?
First of all, this is a new market niche that combines finance and technology. It is a hybrid of traditional financing processes — working capital, transfers, payment processing, deposits, life insurance, payments, and much more. But it repacks their traditional structures into a new workflow. In fact, it reinvents the bicycle, improving the design and principle of its operation.
Modern possibilities of online payments and non-cash payments are used to create new financial structures. The latest ways to scale and mutual integration thanks to the API combined with the new — previously unavailable — features of detailed analytics and microtargeting.
From the “technical department of the bank” to the fintech team
When I wrote about the stages of development of the fintech industry in Ukraine, I called with this word all the technological financial processes that occurred — even if the term “fintech” was not yet there. The developers created financial instruments for banks within the structures themselves, and their work was often “under the hood” and wasn’t the basis of income.
Of course, internet changed everything — well, internet and the rapid growth in the number of people who want to solve their problems online and not offline. Financial and technical solutions became the brand when the first startups began to create high-tech financial products using the latest technologies. Technology, not money, has become a key element. 2008 was the turning point — the year when the AppStore and Google Play (Android Market back then) emerged, around which will lately form a mass culture of using applications to solve all user tasks. Even those tasks cutomers didn’t know they exist. Well, we can say, the best fintech applications gave the customer not a «faster horse», but a car. Opened opportunities for the user about which he/she didn’t know, and had already changed her old customer habits.
Behavior change is the key to success
Fintech has changed the financial world in parts, process by process, building an ecosystem of new payment solutions. The most successful companies have gained billions of dollars in investment. Dozens of “unicorn startups”, more than a hundred billion dollars of investment, reorienting the population of countries towards cashless — that’s what it is to teach people to pay for a communal service, add funds to their mobile account and transfer money in a smartphone.
The biggest trick in all of this is the financial environment and banks, in their essence, haven’t changed at all. Someone left the market, someone adapted and became a leader thanks to successful fintech products. A way of thinking remains the same: users perform standard financial transactions. But the customer’s approach to the process has changed radically: faster, always online. And business is now obliged to maintain the new standards.
You can transfer money to another part of the world with your phone. Make a loan, open a deposit. Pay for travel in the subway by putting the phone to the turnstile, and not to buy a token. Do not wait until another cashier opens in the supermarket, but pay for purchases via the app. Fintech projects have become a window of new opportunities, a decision that has brought the use of financial services to a new level of comfort and convenience. Made a real user experience revolution. How can you not become «fashionable” with it?
