The past few years have seen a revolution in financial technology (FinTech), with the emergence of new tools and platforms that are disrupting the financial services landscape. While much of FinTech thus far has been consumer focused, the coming wave of technological innovation will also affect business-to-business (B2B) operations. For middle market companies, this means new capabilities, efficiencies and cost savings that can help their bottom lines.
The scope of FinTech is enormous—it touches nearly every aspect of the financial value chain. There are new modes and capabilities in crowdfunding, insurance underwriting, peer-to-peer money transfers, digital security, data analysis, wealth management and investment, and more.
These diverse products are all user friendly and provide a positive customer experience while also reducing costs.
The promise of this innovation has drawn an avalanche of venture capital (VC). In 2015 alone, global FinTech investment topped $13.8 billion, a 106 percent increase from a year before, according to a report from KPMG and CB Insights. While investment in VC-backed FinTech startups slowed in 2016, the growth of FinTech companies remains strong.
There has also been an increase in collaboration between FinTech startups and established banks seeking to enhance their capabilities and products. This is in part because FinTech companies ultimately rely on banks to provide the back-end transactions and compliance support needed for their products to work. Existing financial services organizations are making substantial investments in creating new business-focused FinTech, while also investing in and partnering with promising startups that can deliver additional value.
In 2016, about $17.8 billion in venture capital funding went into payments-related startups, according to Venture Scanner, and there are several forces driving this interest in payment technology. Card and automated clearing house (ACH) transactions are growing while check transactions are on the decline. Cash use is decreasing, according to Accenture, but mobile payments are on the rise, with mobile transactions doubling between 2011 and 2015—from 12 to 24 percent—according to the Federal Reserve. Early FinTech leaders focused on peer-to-peer payment, as well as simpler, flexible point-of-sale products for retail. Looking ahead, as FinTech companies in these spaces mature, there's a growing focus on technologies that facilitate and enhance business operations.
For payments, there are three main trends driving the future of FinTech:
The FinTech revolution will continue to disrupt the status quo, but it brings new capabilities that can help organizations improve their operations and enjoy the associated savings and efficiencies.
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