“In each revolution, we create a brand-new way of trading, transacting and storing value — but we don’t get rid of the old ones. So, 5,000 years ago, we invented money; we still have money. Three hundred years ago we invented banks; we’ll still have banks. But in this revolution, the digital revolution, seven billion people on this planet can get access to real-time trade. And that means that there’s a new way of thinking about how we’ll create this Internet of value, and what it’s going to look like longer term.”
–Chris Skinner, author of Digital Bank and FinTech industry commentator.
The complete economic meltdown of 2008 stunned the world and created a shockwave in the banking industry, the aftermath of which can be seen in the world today. People lined up outside of financial institutions to withdraw what they could of their savings, mimicking the environment seen in the Great Depression of the 1930s. Whilst the meltdown destroyed lives and left people without work, it started a shift towards giving people more power over their money and putting the customer at the heart of banking once again. A large portion of the population did not trust banks anymore and were fed up with the system that had continued to let them down. A select few entrepreneurs saw an opportunity in the tragedy and began to kindle the FinTech revolution that is continuing to spread across the globe. Although it could be argued that FinTech has been around for decades with the invention of the credit card when most people think of FinTech they think of the newest 21st-century app that allows them to never even think of cash. FinTech is known to include new platforms like mobile wallets, crowdfunding, InsurTech and roboadvisors which are becoming commonplace on all smartphones and in banks.
A report by Ernst & Young showed the adoption rates of FinTech across major markets and also showed the specific categories being adopted by said users. Images drawn from the report can be seen below and show that India and China are some of the largest users, with money transfers and investments being the largest category. Some of the most interesting and fastest-growing categories of FinTech are InsurTech and alternative lending.
InsurTech allows people to sign up for a variety of insurance policies ranging from life insurance to car insurance. InsurTech has simplified and streamlined the insurance industry that has remained unchanged for centuries. People can now take out insurance policies on cars for an hour, which helps if they are borrowing a friend’s car and want to still be protected by insurance. These companies also now have modified policies if people primarily use public transport and do not want to pay for lengthy insurance policies. The largest InsurTech company: Zhong An, is based out of China and has underwritten 630 million insurance policies and served nearly 200 million people. Another InsurTech company based out of the UK by the name Cuuva has attracted the attention of the Lloyd’s of London Chairman. Lloyd’s of London is the largest insurance and reinsurance market in the world. The transition of this Chairman and sheer number of customers served shows the promise within the industry and the promise in FinTech as a whole.
Alternative lending, on the other hand, allows people to receive funding and secure loans from a variety of sources and has filled a void in the banking industry that has existed for decades. Many small businesses that have had trouble securing funding or loans from big banks in the past can now almost always get funding from FinTech companies. Lending Loop, a Canadian based FinTech company, almost exclusively gives funds to small businesses and uses their own verification and credit system to calculate and manage risk. The common system used in alternative lending is the P2P or “peer to peer” method which accumulates funds from users and then distributes to companies, acting as an intermediary. The user then gets to accumulate interest on his initial investment, similar to a normal investment portfolio. This P2P system is becoming an amazing way to diversify funds away from the stock market and into growing companies. Other forms of alternative lending include the B2B or “business to business” method, equity-based crowdfunding, invoice financing and lines of credit.
Looking ahead to the future it is clear that alternative lending and InsurTech will become a norm within the banking world and continue to disrupt their respective industries as a whole. The banking system is still adjusting to all the changes these technologies have created and regulatory standards are struggling to keep up as a result. Countries like China are leading the way on these regulatory overhauls because of their state-owned structure. Canada and the US are struggling to keep up. The benefits alternative lending has provided to investors and small businesses cannot be overstated and is the reason why there have been 144 alternative lending start-ups in Canada alone. As I stated, FinTech is helping people take control of their financial world and is moulding into the cracks that the traditional banking system has created.
Riley Ebbs is a fourth-year BComm student looking to continue his education at law school. He is an active member of the Dalhousie Real Estate Association, Dalhousie Investment Society and volunteers regularly at Meals on Wheels Halifax. Away from writing for the Dalhousie Business Review, Riley can be found at the rink or on a golf course.