Fintech is short for financial technology and refers to new innovative financial products and services, which through the use of technology, aim to be more efficient, cost-effective and customer-friendly than those provided by traditional financial institutions.
Fintech has become a disruptive force in the financial sector that is threatening the current status quo of banking and finance. The main beneficiary of that is the consumer.
Sectors with Fintech
Within the fast growing fintech space there are companies active in the payments space, wealth management, mobile banking, crypto currencies and the blockchain, alternative financing, insurance, security and risk management, data analytics and financial trading.
These are all areas that are currently experiencing disruption by new firms entering the market, offering better solutions that traditional financial services companies.
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B2C and C2C
One of the leading drivers of the fintech boom has been consumer demand. Consumers desire better, cheaper and user-friendlier financial services, and predominantly prefer to conduct financial transaction online or via their smartphones.
However, private individuals aren’t the only beneficiaries of the emergence of new financial innovations. Small business are also benefitting greatly from the boom in fintech, especially when it comes to raising funds using alternative financing routes.
One of the major growth areas in fintech has been alternative financing, in the forms of crowdfunding and peer-to-peer lending. Crowdfunding refers to the funding of a project using financial contributions from a range of individuals through the use of an online crowdfunding platform.
While peer-to-peer (P2P) lending refers to a process through which individuals and small businesses can borrow money from individuals without the use of a traditional financial intermediary.
It is one of the most popular new ways SMEs can find funding, but also a great way for individual investors to generate strong fixed interest returns. Through peer-to-peer lending platforms, such as Lendico, individuals can invest in a range of peer-to-peer loans and receive higher fixed income returns than they currently would in the bond markets.
Online Financial Trading
Another major area within fintech that has experienced massive growth and disruption is online financial trading for retail investors.
Online brokerages have opened up financial trading to everyday investors, and allow private individuals to trade the financial markets from the comfort of their own home, without the need of dealing with a bank to execute their trades.
One of the leading players in this space is AvaTrade, which was founded in 2006 by entrepreneurs Negev Nozatski and Emmanuelle Kronitz with the aim to provide a customer service-oriented online broker that anyone can use to trade the global currency markets.
The company has since expanded its product suite to meet growing customer demand. It now offers online and mobile app-based trading of all major asset classes, including stocks, bonds, ETFs, commodities, indices and the crypto currency bitcoin.
Fintech in South Africa
Fintech is booming globally and South Africa has managed to position itself as one of the main fintech hubs in Africa. Key areas of focus for African fintech companies are remittance, payments services, alternative financing and mobile banking.
Africa’s heavily underbanked rural population is an ideal target group for fintech companies operating in the before mentioned sectors, as traditional financial institutions have failed with the inclusion of large parts of the continent’s rural population.
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This provides South African fintech companies with huge growth potential, which has not gone unnoticed by investors. Rand Merchant Insurance has launched a fintech hub in Cape Town, called AlphaCode, which provides office space and business networking to young fintech start-ups. Furthermore, Barclays Africa has launched a fintech community and accelerator program called Rise, which aims to boost collaboration and provide the right ecosystem for fintech companies to flourish in South Africa.
Leading South African fintech companies to keep an eye on include the peer-to-peer lenders RainFin and RocMyPeer, payment system provider Gust Pay, mobile banking provider Wizzit, personal money management provider ExpenZA and QR code-based payment provider SnapScan.