The state of FinTech in 2016

Monday 15 February 2016

FinTech is big business, and crypto is forging a niche in a crowded space. What can we learn from the competition?

FinTech - financial technology - is one of the buzzwords du jour. Bitcoin and DLT (distributed ledger technology - get used to it) represent only a small subset of it. There’s a lot more going on as banks, governments, businesses and individuals realise the huge benefits of combining new and existing technologies with banking and finance. The helpful folks at FinTech startup Call Levels, a financial monitoring service, have put together a great infographic to take a look at the landscape - and especially illustrate the rapid growth of the sector.

There has been a dramatic rise in investment over the last few years, from $3 billion in 2013 to $12 billion in 2014 and an estimated $40 billion in 2015. Bitcoin startups represent just $1 billion of that, by the way - not bad, but a drop in the FinTech bucket. However, blockchain services (not just bitcoin, but the whole range of DLT applications that banks and governments are researching) are one of the three biggest areas of focus, along with cloud-based services and payments and lending. It won’t come as much of a surprise that the US and UK are leading the way, but something you might not have expected is that Switzerland is becoming quite a hub for fintech startups.

Mobile payments are a big area of interest, for obvious reasons; the number of smartphones in existence is soaring, but no one has captured the market yet. Square is one of the leaders, but it’s not plain sailing by any means; the company was valued at $6 billion in June 2014, but less than half that by its IPO in November 2015. Among such giants there are few bitcoin businesses, though Coinbase makes it into the Top 3 Aspiring Fintech Unicorns.

So what are the lessons for bitcoin and the crypto movement? Well, ultimately FinTech is about innovation and efficiency. People want to access financial services quickly, easily, on the move and more cheaply than with traditional services.

There are both problems and opportunities there for crypto. It’s not enough to offer the ability to move money cheaply through bitcoin payments, because low transaction fees are built in by default. Hence wallet services are likely to struggle unless they have another string to their bow. Doing things more cheaply than the established players isn’t enough if you can’t also generate revenues for yourself. In that respect, bitcoin itself, as a protocol, is a little too grassroots. Building a business solely on bitcoin is a bit like making money from linux distributions - you need something more than the essentially free product in order to justify charging anything, whether that’s great customer service or merchant tools or trading networks.

So aside from staying lean and keeping a low burn rate, the message is to diversify. Revenues won’t fall into your lap with so much competition about, and any bitcoin business looking for cash is going to need a very clear idea of how they add value for customers and investors.

The State of Fintech in 2016

Made by: SavvyBeaverCA


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