Fintech or financial technology is an industry that was spawned by the increase in regulation followed by the 2008 financial crisis. The increased regulation caused banks to start lending less – currently 50% less compared to pre-crisis times. This created a gap, leaving many smaller businesses underserved by the banking industry.
As all industries are modernising and digitising, they are moving away from fixed assets. This lowers barriers of entry but it also makes it more difficult to borrow money against fixed assets, further exacerbating the credit crunch and again leaving small companies in the shade. Small companies are the fastest growing segment among businesses in Europe; they are the engine for growth. However, they are underserved by the old financial industry, which has resulted in fintech companies popping up to plug precise holes in the system.
“Fintech businesses exist because banks’ organisations don’t change. They have been built as silos, not for customers,” says Kirsi Larkiala from AREX. “Fintechs are specialists that serve underserved areas and focus on the customer.”
Collaboration is the way forward for fintech
Fintech specialists aren’t looking to completely dislodge banks; for them, collaboration is the way forward. “The best way to help customers is to collaborate,” says Larkiala. Relationships are changing from bank-to-client relationships to ecosystems involving fintechs, clients, clients of clients, and banks. There were no banks involved in Heeros’s recent IPO, thus we proved that it’s possible to IPO without the involvement of a bank. That doesn’t mean that banks will fall off. Fintechs are specialists, and that leaves room for established players.
“At Invesdor, we want to focus on providing technology for equity and bond subscriptions. There is still room for banks in the process, and we are happy to collaborate. That is the best way to provide value for the customer,” said Invesdor CEO Lasse Mäkelä. “I believe there will be a lot more collaboration in fintech in the coming years.”
Some banks naturally feel threatened by fintech as up to 30% of banking jobs might get cut as a result of fintech taking hold. “Of course some institutions are resisting the change. However the benefits of adapting are so huge that even laggards will have to adapt eventually,” commented Perttu Jalkanen from AREX. “Just think about the airline industry. There is no airline standing that is not selling tickets online.”
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