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The Fintech sector is growing rapidly, with the UK being one of the leading global hubs and attracting a record investment in 2019. New and innovative financial products are challenging traditional banks by increasing efficiency, reducing cost and improving financial inclusion.
According to a report from industry body Innovate Finance, European investment in Fintech’s reached a record of £6.5 billion in 2019 – a 49% increase year-on-year. Despite uncertainty over Brexit, the UK continued to be the top-ranking Fintech hub in Europe, accounting for £3.8 billion in capital invested.
Other major Fintech centers in Europe, such as Germany and Sweden, also saw record investment in 2019. Germany ranked second, raising a total of £998 million. Sweden made third place, accounting for a year-on-year increase of 3,563% with significant fundraises by Fintech companies Klarna and Tink.
Innovative financial technologies have had a great impact on the financial services landscape in recent years, prompting traditional banks to re-evaluate their previous business models. Being able to rely on transaction fees and requiring costumers to physically visit a bank is becoming a thing of the past.
A paradigm shift in the banking industry
Fintech is giving way to more personalized and accessible financial products within areas such as lending, payments, investing and digital banking. Technology allows Fintech companies to compete with traditional financial institutions by delivering faster, easier and often cheaper financial solutions.
One of the biggest shifts that has occurred is the move to digital-only banks, which allows the costumer to manage everything from their smartphones. An example of a digital bank is Revolut, which recently became the most valuable Fintech startup in the UK with a value of £4.2 billion after a funding round.
Another area in which Fintech has had a significant impact is lending and borrowing. Online lending allows for faster application and approval processes, as well as lower operating costs which results in cheaper deals for the borrower. This has also paved the way for comparison services and financial brokers that allow the costumer to retrieve quotes from multiple lenders and choose the best one.
These comparison services and loan brokers create greater competition among digital-only banks, which in turn leads to lower loan costs. This can be seen in European Fintech hubs such as Sweden, where using financial services to compare loans is becoming increasingly popular. The total cost of a personal loan in Sweden has been shown to be lower when taken out through an online intermediary.
With the number of Fintech firms in the UK expected to more than double in the next decade there is no doubt that the sector will continue to have a great impact on the global financial services industry.
