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Fintech: how technology is changing finance

In this day and age , the word fintech is no longer unusual. It has become commonly used which meaning that this sector has begun to take on a certain importance in the country’s economy and has been able to get closer to citizens by showing them the benefits of its services and products. But what does fintech really mean? Let’s go and find out!

Fintech: what it means

Fintech stands for financial technology and includes all those companies that through the use of technology have changed the world of financial services and therefore the ways in which we buy, apply for loans and mortgages, save and invest. The fintech sector is certainly a sector pervaded by innovation that acts as a driver for change and triggered, from  the beginning, a real revolution in traditional markets and in the world of banking. At times it did so even in the insurance world and, in this case, we can talk about Insurtech.

Many people think that fintech is synonymous with startups but this is not the case. Undoubtedly a large part of the companies that deal with fintech are, but even the most traditional banking institutions can decide to make a transformation and start developing fintech products or services. In some cases, instead of making them in-house, they acquire them and then offer them to their customers to prevent them from being abandoned for a more cutting-edge reality. Even if the level of technology of fintech solutions is high, one should not think of it as something difficult to use: in fact, the characteristic of these solutions is that they are within everyone’s reach: agile and fast, intuitive and very customized to the needs of the end customer who is increasingly demanding and attentive.

In the range of fintech solutions we can find many apps but also more complex software that use artificial intelligence or big data or other new technologies such as blockchain, for example, apps with chatbots, robot advisors, crowdfunding or lending platforms and much more. Within the fintech universe there is a lot of variety on offer and over time it will only increase.

The fintech revolution

A phenomenon such as fintech can be seen as a threat by traditional players who have certainly experienced the an initial shock but have now understood that it is better to have this sector as an ally and not as an enemy. One thing is certain: fintech is disruptive; it has undermined market logics that had survived for years, imposing a different logic that is much more based on free competition, on the customization of services and on the centrality of end customers.  In response, banks, financial institutions and insurance companies have been forced to change their approach to the market, embracing innovation without closing themselves off but getting involved in the new context; some more, some less quickly, but all have had to do so in order to survive.

Fintech and open banking

Also helping to help  the change in market logics came PSD2, the European directive which being effective in Italy from September 2019, obliged banks to allow third-party companies to create applications and services using the bank’s internal data through the use of application programming interfaces (APIs). PDS2 gave birth to open banking and the emergence of an open ecosystem in which banks no longer have a monopoly on data but fintechs and companies  also financial services can develop products and services to customers using the APIs available no longer starting from scratch and therefore more quickly and efficiently.

Fintech and financial inclusion

In the jungle of services that fintech offers, there are many that promote financial inclusion in different ways. Some more explicitly, others less so, but most of the solutions proposed are inclusive, meet the end customer with an intuitive user experience and make sure to simplify their processes as much as possible so they are understandable to all. Not only that: fintech services compared to traditional ones are often more accessible to disadvantaged and low-income people and it is not a coincidence that many fintech companies have found space in developing markets where there are high percentages of unbanked citizens.

Fintech Phenomenon in 2020

Developing internationally over the past decade, in some regions sooner than others, today fintech is an established industry that has some bearing on the economies of various countries. The Fintech & Insurtech Observatory of the Politecnico di Milano has surveyed 2,541 fintech & insurtech startups in the world, for a total of 55.3 billion dollars of funds raised, an average of 22 million dollars per startup. Nearly half of them, (45% ) are based in the Americas, 30% in Europe, particularly the UK, and 22% in Asia, mainly China. Sixty percent of startups operate in banking services, 35% in investments, and 15% in insurance. Nearly two-thirds target retail consumers (63%), 39% the financial sector, 50% businesses in other sectors, and 12% PA. The technologies most used by startups are artificial intelligence (37%), APIs (36%) and Blockchain (24%).

In 2020 despite the pandemic the number of fintech startups has continued to grow especially in Europe where funding has increased by +158% in the last two years, with over 768 startups funded above €1 million. In Italy there are also growing numbers, in 2011 there were just 11 fintechs, in 2015 there were 199 and in 2020, according to the latest EY census, there will be 345, mostly concentrated in Lombardy (169). Both globally and nationally, There is also an increase in collaborations and partnerships both globally and nationally with financial incumbents, industry companies and other startups that contribute to the construction of an open finance ecosystem in which competition benefits the end customers who will have more and more choice between services and products and will be able to find ones that are more and more suited to their condition and needs. The same applies to SMEs are the ideal target of many fintechs especially in Italy where small businesses have often remained cut off from traditional banking services.

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