The fintech industry is exploding, and turning the world of finance upside down. If it hasn't already impacted your life and your investments, it will soon.
Fintech is an industry that uses technology to make financial services more efficient and accessible. From lending and asset management services to payments and ledgers, a new generation of fintech start-ups are taking aim at the heart of the global financial industry. It's disrupting big, established financial institutions by improving their current offerings -- often at a lower cost. In some cases, it even involves introducing an entirely new product or service.
Investment in fintech companies is growing globally, and a sizeable chunk is winding up in Asia, where the industry is poised to take off.
Investment in Fintech Is Growing Rapidly
Last year investment in fintech globally increased by 60% to $20 billion. Growth was even more robust in Asia, with investors putting a record of $4.5 billion into Asian fintech companies in 2015. This was almost quadruple the total amount invested in 2014.
The demand for alternative, innovative financial solutions from investors, businesses, borrowers and lenders is driving the current fintech boom.
The 2008 economic crisis exposed a lot of flaws in the global financial system and created significant consumer distrust of brand-name financial institutions. The crisis, and how big banks responded to it, helped open the door for new banking and finance models.
Both borrowers and lenders have been keen to explore alternative, cheaper financing methods. And with the finance industry severely limited from tighter lending regulations since the crisis, smaller businesses and consumers have found it more difficult to get a loan through traditional channels and are seeking innovative solutions.
Many investors, already comfortable using online tools to manage their portfolios, welcome fintech services that offer lower fees and smaller initial investment requirements.
Fintech Sectors to Watch
Two sectors within fintech stand out: automated investment services, or "robo-advisors", and peer-to-peer online lending platforms that match lenders directly with borrowers.
Both services compete with their nondigital counterparts in efficiency and cost. And a growing number of these companies now service Asia.
Online wealth management companies called robo-advisers use trading algorithms to automatically manage investment portfolios. Robo-advisers are an attractive, low-cost investment option that's good for people who like to manage their finances online. They also let users set up an account with a smaller initial investment than what traditional wealth management firms normally accept. More and more robo-advisory options are now beginning to spring up around Asia, particularly in Singapore and Hong Kong.