Fintech companies are shaking up industries around the globe, placing pressure on traditional industry heavyweights to adapt or collaborate.
Uber, for example, has rattled the cab industry to its core; the seven-year-old company is worth over US$60bn, while its rival, Lyft, is fast catching up. The standard taxi-cab model is quickly becoming outdated; meaning cities are either partnering with the cab-hailing app or banning it to protect the old guard.
Fintech companies tend to have one thing in common that gives them a major edge over their older competitors: they are extremely asset-light. Uber, for instance, does not own vehicles, but links commuters with nearby drivers through its app.
Similarly, eight-year-old Airbnb simply provides a platform for homeowners and travellers to connect, allowing people to easily rent out their homes to tourists and business travellers. Airbnb is now worth around $30bn, but, like Uber, it has had to deal with ongoing legal issues as regulators grapple to keep pace with new technologies.
Perhaps the latest and most exciting industry disruption is happening in the finance sector, from banking and insurance to investing.
Apps which facilitate loans as well as payments and money transfers, for example, are already biting into a key service offered by private banks. In this sector, however, fintech companies are also providing a boost for banks, often by bridging the gap that existed between banks and their untapped client bases.
In Africa, mobile money transfer apps (which sometimes have partner banks) have become hugely popular because they cater to people who were previously ‘unbanked’.
Besides making banking services available to more people, asset-light fintech companies are likely to place pressure on fees in the industry. Another advantage is that many fintech firms in the sector use algorithms to calculate more accurate credit scores than were previously possible.
A March 2016 report by professional services firm PwC says more than 20% of the world’s financial services business will be at risk from fintech companies within the next four years.
This means that traditional financial institutions need to embrace new technologies, either through their own innovation or through collaboration.
