Financial technology is a one-of-a-kind industry. There is no other industry in history that has changed as fast as finance has under fintech’s influence. It’s worth looking at the stages of the industry’s growth to understand better the current state of the industry, which, according to analysts, can reduce up to 30% of the jobs in the next five years.
The first stage lasted from the inception of the Internet in the late 1990s and until the financial crisis of 2008. Online payments and associated infrastructure were dominant at this time. The largest companies as PayPal and Ant Financial became the most significant companies of this period.
Following the 2008 financial crisis, the next stage began. As a result of changes in banking industry regulation and the general weakening of the banking sector, many banks have begun to close entire lines of business.
Banks all over the world started to tighten their lending criteria for prospective borrowers.
All of this paved the way for a lot of new fintech companies to try to fill the gaps left by banks.
Lending accounts for more than half of a bank’s earnings, and it’s in this sector that the most fintech startups have emerged in the last decade. Many startups were able to give their clients better terms than banks due to greater versatility, the online model, the opportunity to operate with alternative data not used by banks, and the availability of cheap funding.
Square was one of the most well-known fintech companies. Its aim was to expand access to financial products for a group of people who were not lucrative for banks to deal with. To accomplish this, the company began developing its own card readers that could be used to accept card payments via smartphones.
And despite the fact that, as the size of companies grew, the first major problems started to appear. And the thing that used to help startups stand out from banks – concentrating on one main service in which the company aimed for maximum performance – started to severely restrict fintech companies’ growth potential.
Having a product line helps you to further monetize your audience in addition to retaining your existing customers. Due to a lack of opportunities for up-and-cross-selling, many fintech companies were forced to compete solely on financial terms, resulting in the failure of some models.