Infographics: How the Fintech (Financial Technology) Industry Performed in 2015

The "Third Wave" generation or the information age has spawned and will give birth to various new industries. 

Part of this has been the the Financial Technology (FinTech) industry.

Financial Technology, according to Wikipedia, are the "line of business based on using software to provide financial services". Additionally, the the technology heavy companies "are generally startups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software".

In short, Fintech industries have emerged to challenge incumbent institutions established by the industrial revolution.

What distinguishes the "information age" as against the "industrial revolution" has been the "decentralized" platforms enabled by digital technology relative to the latter's "centralized" (top-down) institutions.

2015 have been a great year for the Fintech. Below is an infographic of the state of the Fintech in 2015. 

As an aside: disclosure: I do not have exposure yet on Fintech.

The SavvyBeaver writes,

Financial technology or FinTech is an integral part of the global economy. It's what processes transactions, helps us monitor the markets, and keeps the banks ticking. In recent years this kind of technology has rapidly evolved with the advent of mobile banking, cryptocurrencies like Bitcoin, and the general rise of financial apps. There's no telling where it will take us in the future, but if the current stats are anything to go by GROWTH is the word.

A new infographic from SavvyBeaver Canada and startup Call Levels takes a closer look at the current financial technology landscape.

Its exponential growth can be clearly seen from the investment side. From 2013 to 2014, global investment in FinTech jumped from $3 billion to over $12 billion - a 400 percent increase. When the full data from 2015 is in, it's expected to have reached a staggering $40 billion!

Payment and lending solutions make up 40% of all investment, but blockchain technology (popularized by Bitcoin) and Cloud-based services are also heavily backed.

Unsurprisingly the United States is the largest investor, followed by Europe and then Asia. Giants like Citigroup, JP Morgan and Goldman Sachs are all pumping millions in to the industry, alongside individual entrepreneurs like Marc Andreessen of Netscape and Reid Hoffman of LinkedIn. The general public are also increasingly investing, with stocks in Paypal and P2P lending platform Lending Club, leading the pack.

The majority of FinTech startups are also born out of the US, from tech hubs like Silicon Valley, New York and Boston. Collectively these account for roughly 4.7 million companies. India is next with 1.92 million FinTech startups and the UK accounts for 820,000, most of which are developed in London.

The top 5 Unicorns of 2015 (I.e. startups that have been valued over $1 billion), include mobile payment processor Square Inc ($6B), online payment processor Stripe ($3.5B), eCommerce and mCommerce technology company Powa ($2.7B), P2P lending platform Prosper ($1.9B), and outsourced payment processor Adyen ($1.5B).

Quite clearly the current demand is for efficient online and mobile payment processing solutions, which is just a reflection of how society wants to do business. Whether it's the local plumber wanting to accept digital payments instead of cash or a giant corporation wanting to include Bitcoin as a payment option, FinTech is helping us get there.

Meanwhile the top FinTech acquisitions of 2015 include the sale of bank software provider SunGard to FIS for $9.1B, DH Corporation acquired bank payment solution provider Fundtech for $1.25B, and digital payments business Skrill acquired online payment provider Optimal Payments for $1.2B.

What drives FinTech is innovation and efficiency. Simply put people want to be able to access financial services quickly, easily, on the go and for a cheaper price than traditional services. Even relatively new technologies like contactless credit cards are already being challenged by apps like Google Wallet that lets you do the same thing but with your phone instead. One less item to carry and extra security.

Other apps currently in the limelight include Call Levels itself, which allows you to monitor markets like equities and Bitcoin and receive alerts when there's a move you need to know about. Venmo is a digital wallet that allows you to send money instantly between friends and family for free, and you can fund the transaction with credit cards and bank accounts. On a larger scale it could easily rival Paypal.

Quite what the future holds isn't clear but FinTech advocate Michael Spencer believes the public are going to become far more educated in managing their assets and finances because of the apps themselves. He and other analysts like Chris Skinner are also predicting that some of us could end up doing our banking through Facebook.

Made by: SavvyBeaverCA

The Rise of Mobile Banking

From the Economist

SOME 35% of consumers use a mobile phone for making payments, and 45% use one for banking, according to a recent survey of 14 countries by ACI Worldwide, a payment systems company, and Aite Group, a research firm. A group labelled “smartphonatics”—those who change their shopping, financial and payment behaviour as a result of owning a smartphone—are said to be driving demand for mobile financial services. Smartphonatics are most common in developing countries (India and China), probably because of the lack of access to traditional financial services. In India, where only 35% of adults have an account at a formal financial institution and less than 2% have a credit card, 60% are smartphonatics. In Canada, where nearly everyone has a bank account and most people own a credit card, only 7% are smartphonatics. One of the main reasons people gave for not making payments with their phone was the lack of capability. But in seven of the countries surveyed, over two-thirds of consumers said they would like to replace payment cards with their mobile phone.

“Lack of access to traditional financial services” have been a common feature for nations with a large share of informal economy, like the Philippines. Much of these has been due to stringent Anti Money Laundering based regulations for opening of an account on traditional financial platforms.

On the other hand, with a large penetration level of mobile phones, transfers and payments made on the mobile platform seems to be a lot more convenient, and perhaps less regulated yet, and may have contributed to the increasing use of mobile banking.

Notes the McKinsey Quarterly,

In the Philippines, for example, mobile-subscriber penetration is almost 80 percent, but banking penetration is only around 35 percent, leaving 21 million mobile subscribers with no bank account (Exhibit 1). If operators in the Philippines could bring mobile-money penetration rates among the unbanked into line with those achieved by best-practice operators elsewhere, they could acquire four million to five million new customers and add two to three percentage points of growth to their revenues. And these numbers don’t include earnings on loans and deposits, which we conservatively estimate could be a further $60 million to $80 million. Introductory mobile-money services also set the stage for additional cross-selling and up-selling in the future. In addition, eight million unbanked people in the Philippines don’t have mobile phones, and mobile money could make phone subscriptions more attractive to this segment.

I also think that the “lack of capability” in developed economies represents a temporary hurdle which will likely be resolved by the explosion of the use of tablet computers with mobile connectivity features.

Yet with surveys saying that “over two-thirds of consumers said they would like to replace payment cards with their mobile phone”, this should serve as further evidence that mobile banking is a global sunrise industry, which also represents part of the massive lifestyle and commercial changes that is being brought about by the deepening of the information age.

Sunshine Industry: Video Games Media

One of the likely fastest growing applications of the information age would probably the video game industry.

From the Economist, (emphasis added)

OVER the past two decades the video-games business has gone from a cottage industry selling to a few niche customers to a fully grown branch of the entertainment industry. According to PricewaterhouseCoopers (PwC), a consulting firm, the global video-game market was worth around $56 billion last year, and has grown by over 60% since 2006, when the Nintendo Wii console was launched. The gaming industry is more than twice the size of the recorded-music industry, nearly a quarter more than the magazine business and about three-fifths the size of the film industry. PwC predicts that video games will be the fastest-growing form of media over the next few years, with sales rising to $82 billion by 2015. The biggest market is America, whose consumers this year are expected to spend $14.1 billion on games, mostly on the console variety. Consoles also dominate in Britain, the fifth-largest gaming market. In other parts of Europe, and particularly Germany, PC games are more popular. China has overtaken Japan to become the second-biggest market, and is one of the fastest-growing, with sales rising by 20% last year.

How will the growth of video games be facilitated?

Again from the same article, (bold emphasis mine)

Now the ever-increasing computing power of mobile phones has put the means of playing games into the pockets of people who would never think of spending hundreds of dollars on a dedicated console or a PC. The simple games that came pre-loaded onto the mobile handsets of a decade ago have evolved into a subset of the industry in its own right, appealing to a more casual crowd who play them on trains, in airport departure lounges or while waiting for the washing to finish. Today’s smartphones pack far more computing power than the original PlayStation, and games are a big part of their appeal: the two most popular kinds of software on Apple’s App Store are games and entertainment.

The internet has played a crucial part in the rise of video games, enabling developers to get their products into their customers’ hands without the need for traditional shops or publishers. That has allowed small, independent developers to compete with the big firms who might spend tens of millions of dollars on developing a single title and as much again on marketing it. As a result the industry is becoming increasingly fragmented as its markets become more differentiated.

The internet has also become a games platform in its own right, making the hobby truly sociable by electronically linking gamers the world over. Millions of people spend many hours each week playing and working (sometimes the distinction is not clear) in virtual places such as “World of Warcraft” and “EVE Online”. Hundreds of millions more play free, simple, sociable games on Facebook, such as “Lexulous”, which is a bit like Scrabble, and “FarmVille”, a game with an agricultural setting. Increasingly the games themselves are free, but the virtual goods available in these online worlds—a stable for one’s electronic horses, say, or a particularly pretty shirt for one’s digital alter ego to wear—cost real money.

The internet will likely remain a hub for the introduction of many innovative applications due to its largely free market setting.

And video games, mobile commerce, mobile banking and digital healthcare or telemedicine are likely major growth application areas for consumers that will be powered by the rapidly exploding mobile internet platform as manifested by tablet sales.

How Free Markets In The Telecom Industry Aids Economic Development

The global telecom industry best exemplifies how competition spurs economic development.

The growth in mobile use has been phenomenal; some 5 billion people are expected to be subscribers by the end of 2010- that's about 75% of the world population!

And mobile broadband (internet) takeup is also expected to exceed a billion users from 600 million as of 2009!

What makes this astounding is that the gist of the growth has been in the developing or poor economies. In short the poor is benefiting from free trade!

The following charts are from the World Bank's Development Indicators....
And that's because competition has prompted for a sharp decline of prices or fees for mobile services.

In short, the wonders of competition and technology based DEFLATION! (Darn the mainstream for painting deflation as evil)


And lower prices has attracted widespread demand which has led to this astounding growth!


These are emblematic of basic economic laws at work.

Competition drives prices lower, lower prices prompts for more demand, and finally widespread use indicates enhancement to people's lifestyle via enhanced connectivity, greater access to information, the lowering of transaction costs, more efficient markets, greater market breadth, influences on how politics are being shaped, introduces new services and importantly, more prosperity.

So in contrast to protectionists, who are so naively averse to competition and blame everything else to globalization, when domestic policies (bubble policies, regulatory quirks and bias, protectionism, cronyism and statism) have been the culprit for their woes, competition is and will be a MAJOR plus.

Proof?

This magnificent article from Jenny C. Aker and Isaac M. Mbiti of the Boston Review (hat tip: Mark Perry)

[bold emphasis mine]

``There are some good reasons to believe that mobile phones could be the gateway to better lives and livelihoods for poor people. While some of the most fundamental ideas in economics about the virtues of markets assume that information is costless and equally available to all, low-income countries in sub-Saharan Africa are very far from that idealization. Prior to the introduction of mobile phones, farmers, traders, and consumers had to travel long distances to markets, often over very poor roads, simply to obtain price (and other) information. Such travel imposed significant costs in time and money.

``Mobile phones, by contrast, reduce the cost of information. When mobile phones were introduced in Niger, search costs fell by half. Farmers, consumers, and firms can now obtain more and in many cases “better” information—in other words, information that meets their needs. People can then use this information to take advantage of arbitrage opportunities by selling in different markets at different times of year, migrating to new areas, or offering new products. This should, in theory, lead to more efficient markets and improve welfare.

``An emerging body of research suggests that perhaps theory is meeting reality. In many cases, these economic gains from information have occurred without donor investments or interventions from non-governmental organizations. Rather, they are the result of a positive externality from the information technology (IT) sector.

``In Niger, millet, a household staple, is sold via traditional markets scattered throughout the country. Some markets are more than a thousand kilometers away from others with which they trade. The rollout of mobile phone coverage reduced grain price differences across markets by 15 percent between 2001 and 2007, with a greater impact on markets isolated by distance and poor-quality roads. Mobile phones allowed traders to better respond to surpluses and shortages, thereby allocating grains more efficiently across markets and dampening price differences. Mobile phone coverage also increased traders’ profits and decreased the volatility of prices over the course of the year.

``The benefits of mobile phones are not limited to grain markets or to Africa. Robert Jensen, a UCLA economist, found that in the Indian coastal state of Kerala, mobile phones reduced price differences across fish markets by almost 60 percent between 1997 and 2001, providing an almost-perfect example of the “Law of One Price”: when markets work efficiently, identical goods have the same price. Even more impressive, mobile phones almost completely eliminated fisherman’s waste—the catch left unsold at the end of the day—by allowing fishermen to call around to different markets while at sea, choose the market with the best price, and sell accordingly. Mobile phones resulted in welfare improvements for both fishermen and consumers: fishermen’s profits increased by 8 percent, and consumer prices declined by 4 percent."

The article further deals with how the free market in telecoms has influenced improvements to education, health services, financial transaction (mobile banking) and governance (vigil on corruption).

Read the rest here.

Applied to the Philippines, mobile subscribers are estimated today at 72.8 million, according to the Streetinsider.com, or about 80% of the entire population!

Yet popular mobile usage is helping facilitate the introduction of new services as financial intermediation or mobile banking.


Where a big segment remains unbanked, mobile banking is helping to close this gap.

Writes the McKinsey Quarterly,

[bold emphasis mine]

``In the Philippines, for example, mobile-subscriber penetration is almost 80 percent, but banking penetration is only around 35 percent, leaving 21 million mobile subscribers with no bank account. If operators in the Philippines could bring mobile-money penetration rates among the unbanked into line with those achieved by best-practice operators elsewhere, they could acquire four million to five million new customers and add two to three percentage points of growth to their revenues. And these numbers don’t include earnings on loans and deposits, which we conservatively estimate could be a further $60 million to $80 million. Introductory mobile-money services also set the stage for additional cross-selling and up-selling in the future. In addition, eight million unbanked people in the Philippines don’t have mobile phones, and mobile money could make phone subscriptions more attractive to this segment."

From the development aspect, it is worthwhile to repeat that competition impacts the world in general positively.

In terms of investment, in the Philippines, industries that revolve around the growth of mobile banking should be a worthwhile field to consider.

The Final word from Friedrich August von Hayek,

``Competition is essentially a process of the formation of opinion: by spreading information, it creates that unity and coherence of the economic system which we presuppose when we think of it as one market. It creates the views people have about what is best and cheapest, and it is because of it that people know at least as much about possibilities and opportunities as they in fact do. It is thus a process which involves a continuous change in the data and whose significance must therefore be completely missed by any theory which treats these data as constant."

Yes, the telecom industry is essentially validating Hayek.

Creative Destruction: Electronic Payments Over Cash And Checks

Creative destruction appears to be taking hold even in terms of the means to conduct payment.

In the United Kingdom, electronic payments appear to be getting the better of checks 'cheques', where the latter may be reckoned as passe.

According to Mint.com (bold highlights mine),

``This week, the British banks governing the UK Payments Council decided to phase out their check clearing system by October 2018. In effect, they set an expiration date for the use of paper checks (or “cheques” as they prefer). In a statement, the group’s chief, Paul Smee, noted: “There are many more efficient ways of making payments than by paper in the 21st century, and the time is ripe for the economy as a whole to reap the benefits of its replacement.”

``Like letters of credit, demands for payment and bills of exchange, bank drafts can trace their history to Roman times, when checks were known as “praescriptiones.” Paper drafts analogous to today’s checks were in use in the Islamic world in the 9th century and as early as the 12th century Templars honored pilgrims’ checks from one chapter house to the next. In England, clearing houses have had responsibility for settling checks since the early 1800s (before that they were often cashed in coffee houses).

``Bankers complain that many British retailers don’t accept checks anymore, that young people don’t even have checkbooks, and that it’s costing them as much as a pound (about $1.63 today) to process every check. But the decision certainly has its critics—especially advocates for the elderly and small business owners. On one hand, a generation uncomfortable with electronics will be forced to risk carrying and handling more cash. On the other, mom and pop stores have one more disadvantage against giant competitors (some of whom are starting to act as banks themselves). The move will also put the “unbanked”, who have to pay fees to cash checks but also lack access to accounts capable of electronic payments.

``The cost of cash keeps going up while the cost of using credit cards and electronic payments keeps going down. More retailers accept credit cards than checks these days. But while US banks also worry about the costs of handling cash and checks, they aren’t likely to echo the UK decision any time soon. Yes, paper checks are increasingly rare in high-tech countries—whether advanced Scandinavian nations or developing/modernizing regions such as Africa—but the US doesn’t rate as high-tech when it comes to personal finance (present company excepted of course). It has lagged dramatically in the modernization of its financial traditions, such as implementing electronic payments, even compared to Britain."

In other words, technology has been bringing about the intensifying diffusion of the electronic mode of payment as primary means to conduct transactions with reduced reliance on the traditional cash and checks.

The caveat here is that facilitating payments via electronics can translate to more debts and could function as faster conduit for the expansion of circulation or bank credit (inflation).

Nevertheless in a cash society as the Philippines, where 40% of the economy is considered informal and where the penetration level of mobile phones is far greater than people with bank accounts, the likely primary mode of electronic payment that could take shape would be that of mobile banking.

According to CGAP, ``To root the global market sizing in real world data, CGAP, GSMA and McKinsey analyzed, unbanked consumers in the Philippines, where two of the global leaders in m-banking operate (Smart, and Globe). One half (1.6 million) of active mobile banking users in the Philippines are unbanked. Furthermore, 26 percent of active users have incomes below $5 per day. On average, unbanked mobile money users spent $1.9 more per month than peers who do not. This is a considerable gain for mobile operators who saw average revenues per user (ARPU) as low as $4.04 in the 4th quarter of 2008, according to Wireless Intelligence...

``Mobile money reaches a base of financially active people. In the Philippines, more than half of the people interviewed for the study reported using at least one financial product. This mirrors findings in other countries showing the poor to be active money managers. Savings is the most common financial product in the Philippines, with low-income mobile money users and nonusers reporting that they save an average of $34. Informal mechanisms for saving dominate the market.

``Ninety-eight percent of unbanked Filipinos receive their income in cash, and overwhelmingly use informal saving instruments, such as keeping their money at home in a safe hiding place, giving money to a friend or family to hold, or joining a saving club. CGAP and GSMA estimate low-income Filipinos save an estimated $450 million in informal, actively managed with frequent deposits and withdrawals."

In other words, market in spite of government interventions has always been looking for the best interests of consumers. In this case by facilitating an easier mode of conducting transactions via electronics, be it through mobile banking, credit and debit cards or others.

And if markets are always looking for a way satisfy consumers, the recent onrush to gold has likewise brought about a new form of Automated Teller Machines (ATM)- gold ATMs in Germany.

According to the Financial Times (last June)

``Germans, long attracted to the safety of solid gold, will soon be able to sate their appetite for the yellow metal as easily as buying a chocolate bar after plans were announced yesterday to install gold vending machines in airports and railway stations across the country.

``The venture by TG-Gold-Super-Markt, a company based near Stuttgart, aims to build on soaring retail interest in gold since the financial crisis shook confidence in other investments.

``"German investors have always preferred to hold a lot of personal wealth in gold, for historical reasons," said Thomas Geissler, the owner of the company. "They have twice lost everything."

``He hopes to install "Gold to go" machines in 500 locations in German-speaking countries this year."

It's a curiosity how gold can be fused with today's rapid technology and market based innovation trends.

Innovation Trends In Mobile Banking

The wonders of the markets is that the competition to satisfy consumers (and thereby profit from it) function as a major pillar to technological innovation.

Take for instance, in the realm of mobile banking innovative products and services are rapidly being introduced.

Check deposits, money transfers and bills payment have expanded beyond the computers and can now be accessed through the mobile phone.

This should extrapolate to added mobility, greater financial access and savings (time, effort and resources) for consumers, as well as, efficiency and added productivity for the economy.

From mysanantonio.com, (HT: Mark Perry)

``The San Antonio-based company is testing the feature for its iPhone application among its employees and plans to release it to the public soon.

``It is similar to USAA's Deposit@Home program launched in 2006 that allows its customers to deposit checks from home using a computer and a scanner.

“To my knowledge, they will be the first bank to offer it broadly,” said Bob Meara, senior analyst with Celent's banking group in Atlanta. “I'm aware of some very small pilots going on with banks that plan to offer it to their business clients.”

``In mid-May, USAA released an iPhone app that allows people to access their accounts, pay bills, transfer funds and locate an ATM.



``With the application, USAA members simply sign the back of any check and then use their iPhone camera to take a picture of the check's front side and back side.

``They enter some information into the application — including the amount and where it's to be deposited — and then the funds are credited to the designated account.

``Most checks will get immediate availability of funds,” Dennes said."

Innovation, according to Murray Rothbard (Man Economy and State, Chapter 8) is one of the processes adopted by entrepreneurs.

``Entrepreneurial activities are derived from the presence of un­certainty. The entrepreneur is an adjuster of the discrepancies of the market toward greater satisfaction of the desires of the con­sumers. When he innovates he is also an adjuster, since he is ad­justing the discrepancies of the market as they present them­selves in the potential of a new method or product...

``By launching and producing more of the new process, he is pur­suing the entrepreneurial function of adjustment to consumer de­sires, i.e., what he estimates consumer desires will be. If he suc­ceeds in his estimate and reaps a profit, then he and others will continue in this line of activity until the income discrepancy is eliminated and there is no “pure” profit or loss in this area."

In other words, innovation thrives best in free markets.