Fintech Ecosystem: Who’s Involved and What's the Future like?

From Bitcoin to Banking, our take on all you need to know about global fintech systems, trends and tips, from experts at Angels Partners

By 2030, the global fintech market is projected to reach $1.5 trillion. That’s approximately 5 times today’s market value. This booming market has witnessed game-changing technological innovation that continues to re-shape the financial landscape. It's no wonder this sector is dominating the startup world. Collating data from global reports and trends, we’ve got the latest stats and insights so you’re firmly in the loop about this developing sector.

What is Fintech?

Perhaps you’ve heard the term fintech - it's a word that's increasingly tossed around the startup landscape, but what is fintech, actually? Well, when financial services and innovative technologies converge, we are met with fintech - transformative solutions to long-standing traditional financial systems. Think banks, insurance companies and other commonplace financial practices, well, fintech uses advanced and creative technologies to streamline, improve and automate their services, paving the way for a more accessible and user friendly experience. If you’e a user of Revolut, Paypal or Crypto, then you’re already experiencing the power of fintech optimization. But, it doesn’t end there. In fact, there are many other areas of fintech that are changing the way we view and handle finance, including:

• Digital Banking - These “neobanks”, such as Chime, Revolut and Monzo, operate solely through online and digital interfaces, completely revolutionizing the way individuals and companies manage their finances. Bye bye in-person banking, hello banking on the move. 
• Digital Payments - For years now, mobile payments apps and wallets, such as Apple Pay and Google wallet, have enjoyed an upsurge in use thanks to its convenient and user friendly experience. Included in this field are also digital payment systems, like Stripe and PayPal, who facilitate P2P and B2B payments. 
• Cryptocurrency & Blockchain Technology - Decentralised finance (or DeFi, as it's become to be known), such as Bitcoin and Ethereum, is underpinned by one of the most transformative technologies of recent history: blockchain. These P2P transactions dramatically altered how transactions could be carried, without traditional intermediaries.
• Insurance - Using algorithms and data, fintech insurance enables customized premiums and tailored insurance plans, which include sectors of health, property, and life insurance. 
• Investment - Another fintech sector using AI to generate financial decisions, includes digital investment companies, such as Betterment and Wealthfront. Traditional trading has also shifted to brokerage apps, like E-trade and Robinhood, which enable users to trade stocks and crypto with ease.
• Personal Borrowing - Traditional lending has witnessed an upgrade with the introduction of online lending platforms, like LendingClub and buy-now-pay-later (BNPL) services, like Klarna.

Who are the stakeholders in the fintech ecosystem?

Just as any ecosystem is a dynamic interplay between different parties, fintech ecosystems have various groups that are critical for a successful and functioning environment. In short, a fintech ecosystem is usually based on four key components:

1. Consumers - For a fintech product to really work well, a clear and continuous demand is essential. Thanks in part to the pandemic, the demand for digital financial services exploded and consumers are well and truly in the driver’s seat. Fintech companies also rely on consumer-company trust, to be able to access customer data, critical for success.
2. Financial institutions - The majority of fintech companies are connected to  classical institutions, like banks. Instead of replacing them altogether, fintechs build their novel technologies from these traditional financial systems, that hold core consumer data, in their efforts to improve financial services. 
3. Fintech companies - Entrepreneurial talent is the driving force behind a successful startup. A fruitful fintech ecosystem will have a steady pool of experts behind fintech companies, known as “third-party providers”, leveraging customer data (mainly though APIs), to transform financial products and improve user experience.
4. Data Networks - The glue holding together the ecosystem: data networks. Fintechs take advantage of connecting to APIs in already-existing data networks, gaining secure access to consumer data, with the user’s permission.

Why is Fintech a growing industry?

Entrepreneurship is notoriously tough. Throw in an unprecedented world lockdown, continued economic uncertainty and investors keeping their hands firmly in their wallets, and you’ve got an even tougher landscape for startups. So why is fintech a growing industry amongst this disconcerting backdrop? How is that fintech, against all odds, is an industry that keeps on growing? Well, in a nutshell, today’s consumers, particularly the younger generations, prioritize convenience, speed and simplicity, factors that fintech has nailed. 

Not only does fintech enable 24/7 online access from anywhere in the world, it’s often cheaper than traditional banks, and has empowered individuals to have more control over their financial decisions. In a rising gig-economy, fintech provides frameworks and support for freelancers, aligning with increasing customer demand and continuing the pandemic-enforced shift towards digitalisation. 

According to a BCG global fintech report, global revenues increased by a solid 14% over the past two years, with a notable shift towards profitable growth and a move away from the ‘growth at all costs’ attitude that used to dominate the startup-stratosphere. Thanks to several years of less funding and lower valuation terms, fintech has, and continues to, prioritize prudence as well as profitable growth, avoiding added risk to the financial system while continuing to produce significant financial reward. 

Within one fintech ecosystem, growth can also be amplified due to a series of factors, including:

• Limitless scaleup potential - Digitisation and the shift to a more interconnected online world only boosts the potential of this sector.
• Introduction of innovative products to existing users - By way of example, Uber successfully demonstrated that once you’ve got one foot in the door, you can bring a whole load more. Having started with door-to-door transportation services, they have since expanded to food delivery and automobile rental. 
• Adding new features - Tech giant Alipay converted their 451 million users to over 900 million in a 3-year period, all with a single product. How? Well, new features not only improve customer experience, but also increase customer base.
• Developing novel revenue streams - At the risk of stating the obvious, increasing the number of products in a startup’s library, will likely increase a startup’s profitability.

What are Fintech systems?

Behind these startup fintech powerhouses lies the fintech systems, which include software, infrastructure and contemporary strategies, that underpin and facilitate those streamlined financial solutions. Let’s take a look at some of these data-processing and original technologies:

1. Online Banking

• Core banking solutions - Digital banks are essentially run through bank-end systems which manage all faculties of the bank’s operations. 
• Neobanking platforms - These online platforms are a neat combination of core banking systems, digital wallets and customer relationship management 

2. Digital Transactions

• Mobile Payments - Making use of Near Field Communication (NFC) and tokenization technology, systems, like Apple Pay and Google Wallet, guarantee secure transactions, enabling customers to pay for items via their mobile devices.
• Payment Processors - For many online businesses who rely on digital payment, ensuring secure transactions and preventing fraudulent activity is a top priority. Payment systems, like Stripe and networks, like Paypal, handle such processes between buyers and sellers.

3. Cryptocurrency 

• Decentralized Finance (DeFi) - A revolutionary giant in the financial and technology space, blockchain truly disrupted the financial landscape. Using secure, transparent and traceable contracts, blockchain uses a network of computers to validate and legitimize transactions, instead of a single, centralized entity, like a traditional bank

4. Insurance(Insurtech)

• AI Processing: Using machine learning, insurtech companies employ AI-driven simulations to produce risk assessments, claims processing and policy customisation

5. Investment 

• Algorithmic Analysis: Exploiting the high speed and automated data analysis carried out by algorithmic and quantitative trading systems, these bots can execute trades on behalf of institutional investors 

6. Personal Borrowing 

• Automated Platforms: A neat way to gradually build personal wealth, micro-investing platforms, like Digit, provided automated saving or investment services, helping individuals manage their capital.

The Future of Fintech

When innovative technologies disrupt the status quo, a healthy dollop of contemplation (or, perhaps, concern!) for the future shouldn't be overlooked. One of the major concerns in fintech is consumer safety. With the growing demand and adoption of these innovative services, governments and regulatory bodies are hot on the heels of fintech companies, demonstrating their interest in customer safety and regulation. In 2023, the Consumer Financial Protection Bureau (CFPB) proposed additional rules to a pre-existing declaration, prompting financial institutions to make transaction-related data and accounts more available to third parties and promote industry standards for data processing - an indication of government bodies protecting consumers, at the same time as promoting a competitive business ecosystem.

One area to watch out for is the progression from open banking to open finance. The fintech ecosystem has been, and continues to, expand into industries like loans, mortgages and pensions, opening up another impressive range of novel technologies for long-standing financial services. With avenues evolving, it's possible that interconnectedness also evolves across different apps, seamlessly connecting our financial lives. A more integrated financial ecosystem could enhance users' experience and, in turn, have a greater impact on society. As for AI, its integration into fintech will continue to bolster and transform financial technologies, so watch this space!