Why 'Fintech,' Emerging in the 90s, Is Gaining More Attention Over Time?[Next.Jjin]

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Hazel, a financial startup supported by Walmart, the largest retailer in the United States, announced last month that it acquired the payroll platform Even and the financial services mobile application OneFinance, and plans to launch a merged company called ‘ONE’ within the first half of this year. Bloomberg interpreted this as "a signal that Walmart is accelerating its plan to shake up the financial sector by providing technology-driven financial services to 1.6 million workers and over 100 million weekly Walmart users in the U.S."

The whole world is continuously showing interest in ‘fintech.’ Not only large corporations such as Walmart, Apple, and YouTube but also market attention is growing day by day. The industry is expanding with technological changes, moving beyond simple payment and remittance services to digital banking, online insurance, cryptocurrency, and artificial intelligence (AI). Since the word fintech is a combination of Finance and Technology, it is expected that as technology advances, traditional finance will also create various innovations. This is why the term fintech, which gained momentum in the mid-1990s, is still highly regarded even after 30 years.

'Fintech' Unicorns Attracting Capital

The venture capital market is a place where the growing attention to fintech can be clearly seen. Since venture capital invests in startups that actively adopt new technologies and have vision, the large amount of capital flowing into the industry means it is receiving significant attention.

Source: PwC website

According to the ‘Living in a Unicorn World’ report released last month by global consulting firm PwC, analyzing PitchBook data, fintech was the sector that received the largest amount of funding among global unicorns (privately held startups valued at over $1 billion) in the past five years. From January 2016 to June 2021, fintech unicorns received $106.1 billion (approximately 128.3 trillion KRW), surpassing digital commerce ($96.9 billion), enterprise and consumer technology ($96.4 billion), and entertainment and media ($81.1 billion). The number of fintech unicorns also increased from 36 in 2016 to 159 last year, recording an average annual growth rate of 35%.

PwC explained, "Many parts of personal financial transactions that were previously expensive, complex, and nearly impossible are now possible with just a few taps on a mobile phone," adding, "The increase in investment in fintech is one of the reasons unprecedented levels of capital have been poured into unicorns." As money flows into fintech companies, the Bank for International Settlements (BIS) reports that fintech firms attracted over $1 trillion in new funding from 2010 to 2020.

The History of Fintech: From Internet Banking to AI

The term fintech began to be widely used globally after the 2008 global financial crisis. As the operating environment for traditional financial companies deteriorated, interest in the fintech industry incorporating new technologies surged. However, the term fintech first appeared in the 1970s and was first used in the industry in the late 1990s when the internet and e-commerce began to take off.

Source: Massachusetts Institute of Technology (MIT) Sloan School of Management website

Gary Gensler, the first chairman of the U.S. Securities and Exchange Commission (SEC) under the Biden administration and a professor at MIT Sloan School of Management in 2020, explained, "The term fintech has been used among venture capitalists and startup entrepreneurs for 20 years, but its history goes back thousands of years," adding, "Three developments?internet, mobile phones, and cloud computing?since the mid-1990s gave birth to modern fintech." While the development of finance itself can be seen as a form of fintech, the fintech recognized by the current market emerged in the 1990s.

Now, fintech is rapidly expanding into artificial intelligence (AI), blockchain, and more. Startups, including unicorns, are actively developing technologies and services, and large investments from financial institutions and major corporations continue. Additionally, with most people using smartphones and experiencing the COVID-19 pandemic, consumers have become more familiar with fintech technologies. The growth of cloud computing, development of computing and data technologies, and a drive for efficiency have all laid the foundation for further growth of the fintech market.

Business Insider, citing GlobalNewswire, reported that the global fintech market is expected to grow at an average annual rate of 20% over the next four years, reaching a market value of $305 billion by 2025, and stated, "Big tech companies are expected to enter the asset management market within the next few years."

Banks Say "Fintech Regulations Should Be Strengthened"

[Image source=Reuters Yonhap News]

The group most concerned about the growth of fintech companies is the banks. Although fintech has a history of several decades and has been consistently checked, banks feel threatened by its rapid growth. For example, Robinhood, despite a significant drop in stock price recently, rapidly grew last year by leading the MZ generation (Millennials + Generation Z) into stock investment and even went public (IPO). Electronic payment service provider Stripe and buy-now-pay-later service Affirm are directly competing with banks in the individual customer sector.

In response, banks are actively voicing their demands for stricter regulations on fintech companies. According to Bloomberg, Jamie Dimon, CEO of JP Morgan, pointed out in a 66-page letter to shareholders last year that banks pay hundreds of billions of dollars more in costs compared to fintech firms. For example, large banks are subject to legal limits on fees, but fintech companies can avoid these, allowing them to collect more card fees. Bloomberg reported, "Banks want stricter regulations on fintech companies while preparing for strong regulations from the Biden administration."

Editor's Note[Next.Jjin] means 'looking ahead to the real next of business' and is a section that delivers overseas news related to future industries and startups such as the metaverse, artificial intelligence (AI), and robotics. We will uncover and explain both major visible issues and small but important hidden issues to provide easy-to-understand news.