FINTECH: The New Term Every Entrepreneur Needs to KnowStephanie Faris
[content field=”callout1″ format=”true” class=”calloutwide”]A new term has emerged in recent months, leaving many entrepreneurs to wonder what it means. “ Fintech ” is a category of startup tech that includes such disruptive technology as mobile payments, fundraising, and peer-to-peer lending. A combination of the words “financial” and “technology,” the sector merely refers to technology that is innovating the financial industry.
Even for entrepreneurs who aren’t in the financial space, it’s important to know as much as possible about fintech. The sector is now gaining attention from some of the biggest names in business today, with investors from Wall Street to Silicon Valley eager to get in on the ground floor of what promises to be the next big thing. Here are a few things every entrepreneur should know about fintech.
Timing is Everything
Banking technology was built on legacy systems, designed for security and liability. But these systems have fallen out of favor in the financial sector, as banks and other institutions fall under increasing pressure to compete. It isn’t enough to merely shift to a new system. These businesses realize they must be truly innovative in order to excel.
Fintech is evolving at a time when financial institutions are ready for it. In 2013, fintech companies raised almost $3 billion, which was a significant increase over the $930 million invested in fintech companies in 2008. That number is only expected to increase as more attention is focused on innovative financial systems.
This space isn’t without its challenges, however. In recent years, some fintech companies have moved toward institutional and capital market financial technology instead of consumer fintech. Investors are often more interested in broad-appeal startups that appeal to the consumer market, especially outside of Wall Street.
Fintech startups of all types also grapple with the complex issue of regulatory requirements. Financial institutions are highly regulated, leading to layers of red tape when fintech startups want to tackle the enterprise side. As ValueStream Labs’ Greg Neufeld pointed out to Crains New York, startups that target the consumer side of finance will have a lead over those that are geared toward the enterprise angle.
What This Means for Business
As fintech changes the way companies do business, entrepreneurs are being directly impacted, as well. When a startup needs investment dollars, it may turn to a crowdfunding site or a webpage that connects startups with angel investors rather than pounding the pavement. Fintech has given businesses the opportunity to move money more reliably and affordably than ever.
Fintech’s influence stands to change the face of business permanently, which is notable for another reason. Startups of any type can learn from the way fintech is changing the financial industry, while also benefiting from they way it connects them with investors, financial institutions, and consumers in new ways. The fact that fintech is first connecting with customers with a later promise of making a major impact at the business level is also notable. Like fintech, technology seems to often have wider visibility at the consumer level than in back-end operations, although both are essential.