FinTech | Beyond 2020 – Part 3
FinTech is eating up the world. I think my first introduction to the word FinTech was when I started learning about companies like Square and Coinbase. If I were to define FinTech in my own simple way, I would define it as the modernization of traditional financial services.
The emergence of the Blockchain and Crypto has accelerated the number of FinTech companies that are popping up. Most of these companies live by the same ethos, which is to serve the unbanked and for everyone to be their own bank in a way. The traditional financial markets has never really worked for the people, especially if you think about all the hoops you have to go through just to take your money out, transfer money to someone, or borrow money.
There are 3 occasions that unlocked my mind to the full potential of FinTech and how it will revolutionize the world. In fact, I truly believe this could be the next technological revolution since perhaps the Internet.
- The use of peer-to-peer payments like CashApp (owned by Square) and Venmo (owned by PayPal).
- The ability to trade Crypto assets in a market that runs 24-7-365 blew my mind. Compare that to the traditional financial market which only runs 5 days a week (excluding holidays) at 9:30am – 4pm. This seems so archaic now compared to crypto.
- Reading about how China sent stimulus money to citizens electronically via AliPay and WeChat wallets instantly. Meanwhile the U.S. was and is still struggling to fully get the stimulus money out.
The exponential growth in FinTech is still unrealized. Leveraging the use of this technology is the future of finance. To break things down into more detail, the traditional financial markets offer 3 core services for the most part: (1) Banking (2) Lending (3) Payments.
Banking – Your banking services include things like Checking Account, Savings Account, Retirement Account etc. In some cases, your bank may offer brokerage services, ex: Bank of America has Merrill Edge, TD has TD Ameritrade and Charles Schwab with StreetSmart Edge. FinTech companies disrupting this space include:
Lending – Lending services include things like needing to get a car loan, a mortgage or a business loan. This is something you will typically go to a lender for in the traditional finance world. This is starting to change in the FinTech world with the emergence of DeFi, also known as Decentralized Finance. FinTech companies disrupting this space include:
Payments – Payment services include things like peer-to-peer payments , ability to send money internationally via wire, the ability to make bill payments, credit card payments etc...The great thing about Crypto is that these various form of payments that exist in traditional finance today are irrelevant, because a Crypto transaction works the same way. The transaction is 1-to-1, between the sender and recipient, as well as near instantaneous. FinTech companies disrupting this space include:
Square is leading this space in many ways, as it is more of a household name compared to the others. Square also provides a plethora of services that cater to both consumers and small businesses alike. Paypal on the other hand you may think should not be on the list, but they acquired Venmo in 2013 via BrainTree. The Venmo product is also highly used for payments second to Cash App.
FinTech is still very much in the infancy stage. Traditional Finance is one of the few areas that has not been highly disrupted with technology. This is starting to change and FinTech is here to stay.