Technology continues to change dramatically the way the world works, whether or not people want to acknowledge it. Financial services have not escaped this process.
Financial technology, also known as FinTech, encompasses the new technologies that are greatly assisting financial services. Such technologies like crowdfunding, peer-to-peer lending, mobile payments, digital currencies and robo-advisers, have disrupted different financial services such as mobile payments, money transfers, loans, fundraising and even asset management.
FinTech is usually associated with the startup scene, because startups are characteristically tech-focused, with the objective of scaling fast. However, FinTech is radically changing the way people (tech-savvy or not) can access financial services, and thus will continue to have a wide-reaching impact on financial services.
FinTech in Australia
With the creation of the smartphone and the proliferation of other services and apps that make life easier, people expect to handle their finances conveniently. Convenience often equates to being fast, secure and cost-effective.
The Turnbull government at the start of 2016 even announced the establishment of an expert advisory panel called FinTech, aimed at making Australia the leading market in Asia for financial technology. Additionally, the Australian Securities and Investments Commission (ASIC) is working towards allowing FinTech startups to operate for six months without having to hold an Australian Financial Services Licence (AFSL). Without having to worry about additional timely procedures like the AFSL before securing funding, FinTech startups will be able to attract investment and get to market faster, thereby benefitting consumers.
Advantages of FinTech Compared to Traditional Banks
Simply put, FinTech makes it easier to do business – and do it at lower costs.
Startups are agiler than traditional banks
Banks will be faced with a challenge to keep up with the multitude of FinTech startups innovating the existing business model and making financial services so much more efficient. MoneyPlace is one example of a web-based platform, which acts as an intermediary between people seeking personal loans and investors. TransferWise has enabled the traditional, expensive process of sending money internationally, into a more cost-effective solution.
There are fewer barriers to financial services through FinTech startups than traditional banks
FinTech startups can cut through more of the red tape, compared to banks, which makes it easier for people to access their services. For example, on the topic of consumer credit decisions, MoneyPlace differentiates itself from the highly constrained process of most banks. Why? Well, while such decisions in banks are made primarily on information from existing customer records and application forms, MoneyPlace is using additional data sets to make these decisions. In turn, this results in more thorough assessments of prospective borrowers and a more considered risk-based loan. Therefore people that are new to the market or who don’t have much credit history are not necessarily rejected.
Singular focus means that they do one thing, but they do it well
FinTech startups tend to have a focus on a single respective space in the world of financial services. Therefore while they have to start from scratch, acquiring and building up a customer base, their focus on a single financial service allows them to get better results and adapt, a lot easier.
Puts the focus back on the customer
Six Park uses innovative technology to give Australian investors a low cost and highly accessible investment guidance service. Six Pack also is not aligned with any other financial institution, meaning that they prioritise the best interests of the investor.
FinTech will continue to penetrate the traditional methods of offering financial services, especially when the consumer becomes more knowledgeable about the variety of ways they can handle their financial affairs, in less time and with less money. Moreover, the influence of startups in this space has not just been heralded for the harnessing of technology but also for addressing inherent inefficiencies of traditional financial services. Questions about FinTech? Contact our startup lawyers or give us a call.