Financial Technology is stimulating financial inclusion and offering vertical opportunities for investors

Fintech is a portmanteau of financial technology which denotes the use of new technology and innovation with available resources in order to compete in the marketplace of traditional financial institutions and intercessors in the delivery of financial services.

Investments in Fintech startups continue to rise. Global investment in Fintech ventures reached $22.3bn in 2015. That represented a 75 percent jump compared to the previous year. Fintech startups are becoming a threat to traditional financial services by offering alternate options for digital and mobile payments, personal savings and short-term loans.

The rise in the usage of smartphones and internet penetration has seen the delivery of financial services at affordable costs to the low-income segments of many societies. An estimated 2 billion people of working-age adults don’t have access to the formal financial services offered by regulated financial institutions. Only 24 percent of sub-Saharan Africa adults have bank accounts. Fintech is bridging this gap proving financial services to those at the bottom of the financial and social spectrum. Not only is financial technology bridging this gap, it is also offering vertical business opportunities for investors.

Some of the notable verticals resulting from Fintech include:

  • Mobile Payment
    Fintech is enabling consumers to pay for a wide range of goods, both digital and hard, and services using their mobile. Instead of using cash or credit cards to make a purchase, consumers can simply access their bank accounts via mobile phones and complete transactions in real time. The unbanked and underbanked in developing countries are able to enjoy financial services through their mobile phones. They can easily pay for goods and services without using physical currency.
  • Consumer lending
    Traditionally, to access credit, one would have to borrow money from a relative, friend or the traditional financial route, a bank. It is now possible to access short-term credit using mobile phones. M-Pesa, Kenya’s mobile money platform, offers short-term loans to subscribers at fair costs. The more you save, and the more you borrow and pay on time, the higher your credit limit.
  • Insurance
    Insurance services ranging from auto, motorcycle, home, travel and life insurance to personal items insurance can now be bought online and premiums paid using mobile phones. Fintech is reducing operational costs and friction which are synonymous with old-school insurers. Availability of big data on a vast number of insurable trends is supporting this category.
  • Capital markets & Investing
    Kenya became the first country to exclusively sell government bonds to citizens via mobile phones. Kenyans can buy government bonds from as little as $30. Fintech is supporting the growth of capital markets with startups monitoring the activities of suppliers and users of capital, and facilitating the buying and selling of equity and debt instruments.
  • Personal financial management
    Personal finance is a vital function that includes monitoring personal earnings, savings, spending, investing and the risks associated with an uncertain future. Fintech is enabling individuals to plan and analyze and understand their current financial positions and execute a plan that will assist them meet short term and long-term financial needs. Applications such as Budget Buddy enable users to keep tabs of their day to day expenditure and know their current financial position.

Many Fintech startups are yet to hit a critical mass and this is partly because the financial services industry is heavily regulated. Regulators are concerned about data security due to the threat posed by hacking and the fact that financial services are made up of information. However, due to its nature, finance is seen as one of the industries most vulnerable to disruptions and the exponential growth of financial technology seems to be validating this view.

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