It is well-acknowledged that banks are conservative institutions, which, until now, has been an admired and respected trait. But the raise of so-called “FinTechs” (financial technology startups) has significantly shifted the way we perceive financial services today. It has created new demand and has had an enormous impact on our preferences in terms of financial services. Let’s face it, they changed. A lot. Did you ever wonder why?
Well, FinTechs are building products we did not know we needed. Crowdfunding? Peer-to- peer payments and lending? If we take a look at how things used to be, we would normally to go to a bank, chat with Mr. Smith in our favourite branch, make a withdrawal or deposit and move on. Today, we rarely visit banks and we do not know if Mr. Smith works there or not. Our interaction with the financial service providers has moved almost entirely into the digital sphere.
How did it happen?
Contrary to the traditional banks, FinTechs have the capacity to innovate quickly. They are agile and pretty much free from any legacy. But to get to the point they are at today, they needed to fill in the gaps and provided innovative solutions in the areas where banks were underperforming. They also targeted customer segments that could have been slightly overlooked by banks. For instance, they provided more opportunities for getting business loans for women. With a tad more of a customer-centric approach, FinTechs have created platforms suitable to meet the needs of new, more sophisticated Internet users. Convenience, ease of use, and simplicity are always on the FinTech agenda.
In recent years, FinTechs gradually built up their own position in the financial ecosystem. They enabled growth opportunities for numerous sectors, e.g. software, payments, mobile banking, data analytics, or algorithmic asset management systems. They not only showed customers how easy it can be to manage one’s money, but they significantly changed people’s expectations. More importantly, they gave access to personal and business funding to those who would not have had it otherwise. Getting secured business loans with bad credit suddenly became possible. So even though banks’ positions won’t be shaken up by a small FinTech startup, it could be undermined by the tech giants like Google or Apple. In contrast to the startups, they have established position, funds, resources, and customers.
Should that mixed environment of financial technology companies be somehow supported by the governments? It should, and here’s why.
The FinTech ecosystem is still fairly undefined. Banks for instance are strongly embedded in the regulatory net, whereas FinTechs not as much. This results in an unclear ground for competition. More importantly though, it puts those two entities on two different sides of the spectrum. Nurturing that ecosystem is thus difficult, and demands collaboration between governments, financial institutions, and entrepreneurs.
Since the financial sector is a strictly regulated environment, governments’ role and responsibilities are much more essential than in other sectors. They can help facilitate Bank-FinTech partnerships by deregulating areas such as copyright, and product registration or by simply offering tax breaks. Experts suggest that governments should create a regulatory sandbox, which would serve as an opportunity for FinTechs to test news ideas without being subjected to immediate regulations check. The UK government with the Financial Conduct Authority, has already created such a sandbox, and the Bank of England has established FinTech Accelerator. Similarly, Australian regulators got involved in the FinTech sphere by establishing the Australian Securities and Investments Commission (ASIC). ASIC engages in FinTech initiatives by providing physical hubs and co-working spaces or informal guidance to startups, to name a few. ASICS’s Innovation Hub is consistent with the Government’s deregulatory agenda – “Streamlining its engagement with the FinTech sector and removing red tape.”
Given the complexity of the sector, governments have to engage at some point. Either by acting as catalysts for innovation by working towards a better regulatory environment, or by defining business accelerators and offerings. And by promoting this ecosystem, governments have a significant power to take the market of financial services to the next level. Their involvement may certainly encourage bank competition, but more importantly it can lower banking costs for consumers and open up a wealth of possibilities for us, the consumers.
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How Crowdfunding is Changing Entrepreneurship
The world of small and new businesses has been recently upgraded with business funding options by extremely active and forward-looking financial technology startups. The phenomena of those disruptors has been discussed over and over by tech experts, bankers and entrepreneurs.
It cannot go unnoticed that their advances in the financial sector are significantly changing what us, ordinary people, can do with our businesses. Suddenly, establishing a new venture or supporting an existing one is much more possible than it used to be. FinTech disruptors focus not on problems, but on solutions. Relying only on banks or government institutions might have caused dizziness and anxiety given their requirements for borrowing money.
However, besides regular money lending and borrowing, technology’s progression created something even more innovative and also rather unusual — crowdfunding. It is a practice of funding a project by raising funds through many small contributions from a large number of people, typically via the Internet.
The concept of crowdfunding has been mainly promoted by companies like Kickstarter, Indiegogo and GoFundMe. What distinguishes it from other business funding options is that, in most cases, it does not involve giving away equity. Rather, it is based on a reward system. The idea behind Kickstarter, for instance, is to allow people to support various concepts and ideas.
However, knowing how we humans are, we also want to get something in return. Kickstarter came up with the idea of rewards, which involves a copy of your work in different formats.
So what is so inspiring about crowdfunding? The ideas, the missions.
Carcel, a Copenhagen-based fashion label, manufactured by women in prison reached its initial funding goal in one day, surpassing it by 200,000 DKK. The idea behind the company is based on simple premises. It revolves around combining resources in a smart and efficient way, and at the same time making an impact and helping others.
The founder of the label cooperates with imprisoned Peruvian women who are sewing clothes made of 100% Baby Alpaca. As the women were already sewing clothes in the prison without any access to a market, the founder wanted to turn their wasted time into skills and paid jobs so women in prison could support themselves and their families. The next collection planned is to be made from 100% organic silk, manufactured in prisons in India.
Other projects raising humongous capital through crowdfunding did actually provide more basic products, or missions that were more low-key in comparison to Carcel. Nothing exquisite, though something we all need in our everyday lives – card games and showerheads. We all know the USA to be an entrepreneurial hub; thus no wonder one of the biggest pledges just happened there.
The card game Exploding Kittens was backed by 219,382 bankers pledging, wait for it… $8,782,571. Yes, you read that correctly.
The next famous story involves a showerhead. Nebia Shower got backed with $3,126,114 to introduce its water saving showerhead that is incredible in its design.
Frankly speaking, crowdfunding platforms are a perfect foundation for promoting your projects. It mostly depends on how you go about it, and how much time you invest in the promotion. Given how quickly different stories go viral, in a matter of hours or days, signing up your project should be supported by careful planning and execution of your idea.
Either way, crowdfunding supports entrepreneurship by opening the doors of possibilities for people with innovative ideas. Given the difficulty entrepreneurs are facing with setting up their businesses, crowdfunding is one of the options that contributes to sustaining a healthy economy. It simply does it through giving people the access and opportunity to contribute.
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