The rise of Fintech

How the financial services industry is relying more and more on technology

 

The term “Fintech” is well-known and widespread phenomenon globally today. Recently emerged, it denotes the technology used by financial services firms. Broadly, it is used for the IT services firms focused on offering technology solutions to financial sector firms like banking, insurance and capital markets. The nascent FinTech industry has seen rapid growth over the last few years as this domain-focused approach has been adopted not only by tech start-ups but also by the IT giants of this world.

 

Business for fintech firms has zoomed significantly in the first decade of the century. The growth rate has surged multiple times especially after the economic downturn of 2008-2009. Larger financial institutions have since been heavily investing in technology with a two pronged approach - to recover from the downturn and attain a quicker growth rate. Recent research statistics reveal that the global investment in technology backing financial services ventures has tripled to a whopping $12.21 billion in 2014 against $4 billion in 2013 with US having the largest chunk of the pie.

 

With a rapid growth in the overall volume of transactions majorly in sectors like banking, capital markets and insurance, there is an unprecedented demand for technological innovations and automation. The biggest driving force behind this is a need to cope with increased complexity and risk. Expansion of business with regulatory compliance is yet another challenge faced by major financial institutions. With the introduction of stringent regulatory frameworks like the FATCA and Basel III, players in the financial services markets are progressively eying to migrate from existing legacy systems and implement modern technology solutions.

 

Another catalyst is the evolution of mobile devices and a stiff ascension in the use of internet resulting in the change in the preference for a customer whilst carrying out financial transactions. Whether it’s a personal banking wire transfer or stocks & commodities trading, online wallet service or insurance policy management, today’s tech-savvy end users want a real-time, unified interface across all devices including PCs, smart phones and tablets they use.  The new mindset of “Mobile-first” has also fueled this phenomenon, connoting a cultural shift wherein mobile devices are now being embraced as a primary platform for any service. The financial services sector is witnessing a transformation and moving beyond the tradition of treating mobile as just a value-added or premium service to customers.

 

The need to eliminate intermediaries and deal directly with banks and financial institutions is the major reason behind this choice and end-users are now willing to lap it up. They want to take complete charge of their investment portfolio without relying on any financial advisor. While customers are getting more conscious towards cost of investments, financial institutions are also trying to reduce the average transaction cost by encouraging customers to use virtual channels over experiential ones.

 

Over the years, there is a visible spike in the trend of outsourcing routine business operations by financial institutions in order to focus on their core businesses. These include filing, indexing, data processing, report generation, insurance policy management etc. According to a prediction by Gartner, the business process management spend by the industry is expected to reach $2.7 billion in 2015. Also, the entities operating globally with decentralized operations are now opting to consolidate their systems and get a single-screen, dashboard view of their current business position.

 

Biggies in financial services – especially conglomerates are no more viewing investment in technology as luxury.  Recent study by leading researchers suggests that even start-ups and medium-scale enterprises in emerging economies are now hunting for technology solutions, enabling a competitive edge over competition. Catering to these requirements are a large number of enterprises principally focusing on the untapped market of small and medium enterprises.

 

The Indian software export industry too is beginning to pick up steam post the lull it experienced over the past few years. The US however still continues to contribute to a major chunk of the pie – over 50% of sales. The fintech business in India is growing exponentially and is catering to local as well as foreign businesses. One of the major catalysts is the radical change that financial institutions are undergoing, largely in terms of technological innovations. Be it India's largest, oldest and most venerable public sector bank or the securities arm of a leading private sector bank, technology has been a backbone of the business models to drive growth and transform customer experience.

 

The fact that technology is enabling financial institutions to become increasingly agile and deliver flexible and more efficient services to end users is creating new pathways for growth in revenue. A leading financial institution used technology to reduce the processing time to nearly one – fourth of what it was, thus improving its trading platform performance by 300%. Research firm Gartner stated that in 2014, the IT spend for Indian financial services firms increased by more than 10 percent over the previous year.

 

Research across the globe has shown that angel investors and venture capitalists are giving a shot in the arm to the burgeoning fintech industry. PitchBook – a leading research firm for private equity and venture capital - stated that financial technology firms raised $1.33 billion from 103 deals in Q1 2015, up from $1.05 billion during the same time period in 2014. This is indeed a healthy sign for the growth of fintech businesses in the upcoming decade. Acquisition is yet another trend in the fintech landscape. On the other hand, many entrepreneurs opt for premature exit from the industry when their business is at peak, without taking it to the next level. 

 

If pushed well, the fintech industry has a potential to catch up with the already grown IT sector. It has become the need of the hour for financial majors to address technology challenges with the help of pure-play technology service providers focused on financial services space.

 

About Faisal Husain

Faisal Husain is the Co-Founder and CEO of Synechron. He is responsible for providing the vision, overall leadership and driving sales for the organization. He started Synechron in 2001 after quitting a prestigious job at Merrill Lynch where he was responsible for setting up their outsourcing practice for the e-commerce and fixed income teams.

Armed with 14 years of work experience as a Wall Street technologist and a hands-on approach in IT services delivery, Faisal is regarded as a prodigy in the industry.

Faisal holds a Bachelor of Technology degree in Aeronautical Engineering and a Master of Science degree in Computer Science.

 

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