By Saurav Rajbhandari

Fin-tech has a history dating back to the 1950s when credit cards were first issued. ATM machines were built, and in the ‘70s, electronic stock trading started. Then the Internet was made available to the general public in the late ‘80s and early ‘90s, new market opportunities prospered, and innovative tech companies began to form. The Internet took over communications and entertainment, and it also made a huge impact on the financial sector. E-commerce became popular, and companies like PayPal began to provide money transferring services. After the smart phone revolution that took place from 2007-2015, fin-tech has become accessible to all.

Investment in fin-tech startups has risen five times in the last three years. Globally, investments rose from $3.742 billion in 2013 to $19 billion in 2015. Looking at the competition brought in by new companies, banks have also started bringing out services similar to those provided by fin-tech startups.

Here are the recent trends to watch for in fin-tech industry:

1. Business Process & Variety in Service
Fin-tech has changed the way companies conduct business. From retail to healthcare, the relationship between customer and service provider has changed. People can now access their accounts, get loans, and make payments online without having to leave home. Innovative fin-tech companies have made it easier. Lending Club provides peer-to-peer lending services, and Avant is another company which provides loans without charging fees to the customer. A customer can get a loan from one company and health insurance services from another. All of this can be done by using an app on their phone.

2. Target Audience
Startups are targeting Millennials who, in 2015, took over the baby boomers in population size. Millennials have different consumption habits. Millennials are less influenced by advertisement and rely mostly on reviews and blog posts before buying a product. According to the Millennial Disruption Index (MDI), a three year study of Millennials found that, 1 in 3 would switch banks in the next 90 days, and more than half of the 10,000+ respondents did not think their banks offer anything different than other banks. According to Federal Reserve data, in 2015 more than 50% of U.S. adults aged 30 to 44 used some form of mobile banking.

3. Financial Education through Fin-Tech
Fin-tech companies specialize on a particular service whereas banks provide multiple services to the customer. By specializing in a single service, fin-tech companies simplify the process of doing business. This educates people about financial services and what’s beneficial for them. Personal Capital, a company based in Redwood City, provides services for the customer to educate themselves to manage their wealth through different analytical tools. OnDeck is another loan provider for small businesses. The company helps businesses get hassle free loans.

Banks versus Startups

According to a recent Moody’s Investor Service report, the analysts said they anticipate that banks will take advantage of new technology and improve customer experience to maintain competitiveness. They also predicted while the fin-tech depends on Millennials for growth, it will still take a few more years before this group dominates the financial services spectrum. Banks have been quick to offer services. The study also found that JPMorgan Chase, Wells Fargo, and Bank of America have some of the most downloaded mobile applications among financial services firms. These applications have been downloaded by more than 60 million users. Banks, being traditional businesses, have major advantages over fin-tech companies. They have a large user base and have a sizeable credit underwriting capability. It is still a struggle for startups to raise investment.

If we look globally, there are approximately 4000 fin-tech companies, and the number is rising as investments in these companies grew five times in just the span of two years. Fin-tech companies have been restructuring how banking procedures work and made it attractive for the consumers. Some fin-tech companies have also collaborated with big banks. OnDeck collaborated with JPMorgan Chase and Co. to speed up the small loan transaction services. This saw OnDeck’s stock surge 28% in extended trading. According to a report from the Federal Reserve, 14% of consumers are underbanked and 48% of the underbanked have used mobile banking. Fin-tech startups have a big opportunity to cater to this portion of the population.

Citigroup predicted in a report titled “Digital Disruption,” up to 30% of current employees in the global banking industry may lose their jobs in the next 10 years. The analysts estimated that in personal lending, digital payments, and wealth management, new players are likely to take 13% of the business in the next five years.

Future of Fin-Tech & Economic Development

Fin-tech companies are not re-inventing the wheel rather they are reorganizing the way business is done. Millennials are a driving force and valued clients for most fin-tech companies. Millennials will have $7 trillion worth of liquid assets in the next few years. This will create opportunities for fin-tech startups. Fin-tech startups can contribute to the local economy by reaching the underbanked and creating job opportunities in communities. Companies and banks can also work together to serve communities. More importantly, technology can play a major role in educating people about managing their finances and also encouraging people to start their own businesses.

The World Bank estimates that, globally, crowdfunding will reach $90 billion by 2020. If equity crowdfunding doubles in size annually over the next few years, it will overtake venture capital as the largest source of startup funding by 2020. There are crowdfunding companies like Kickstarter and Indiegogo which are helping innovative projects get funded.

Fin-tech has changed the way how we pay for goods. Money is not just cash and coin now. Mobile applications like Apple Pay and Android Pay have brought out options for phone users to pay through their phones without the burden of carrying cash around. If this trend catches, on it will bring disruption in the industry.

Cyber security has become a major topic of concern for finance. Hackers stole $101 million from a bank in Bangladesh in February this year, and more recently, hackers stole $12.7 million in just a span of 3 hours from ATMs in Tokyo. Companies need to look at all the possible leaks in their system because hackers need just one fault to exploit. To solve this problem, communication is determined to play a vital role. If larger banks with bigger resources can share their defenses, risk for all financial organizations decreases.

All in all, the future of fin-tech looks bright. The sector also has the possibility of directly impacting the community through financial education and access of loans and services to the people that banks have been unable to serve in the past.