Fintech in Kazakhstan are associated primarily with the online lending market. For the last two years, this market has been successfully and very rapidly developing. It is happening so quickly that it attracts the attention of the financial authorities and the general public, who began to actively discuss in social networks whether it is good or bad to lend at 1% a day.
At the same time, reducing fintech to online lending is an over-simplification to the point of being incorrect, because fintech is something much bigger and more interesting than just loans offered over the Internet.
What is fintech? Let's try to figure it out.
Growth of global investments in fintech
Fintech is an acronym for financial technology. It is an umbrella name for a multifaceted industry that is actively developing around the world and transforming financial services by incorporating modern digital technologies into them.
Large fintech companies already operate in all financial spheres, from consumer or mortgage lending and SME financing to trade services, and also in payments and transfers, investment management and crowdfunding. They use big data and advanced analytics, artificial intelligence and robo-advisers. In other words, fintech refers to innovations that make all transactions related to money more accessible, easier, more convenient, cheaper, faster and safer.
According to KPMG's industry report "The Pulse of Fintech" at the global level, investments in the fintech sector (combined from venture capital, private equity and M&A) increased sharply in 2014, exceeding $30 billion and tripling compared to 2010. They rose again sharply in 2015, reaching nearly $60 billion. 2016 and 2017 saw a return to about $30 billion per year as it was in 2014.
The dramatic growth of fintech in the past few years is due to several factors.
First of all, the sector itself is growing, and investors are moving from experimenting with small amounts of money to substantially supporting business models that have proven viability and have great growth potential.
Secondly, the technologies themselves (both software and hardware), such as blockchain, machine learning and powerful servers, which are capable to perform the relevant analytics, are actively developing. And more consumer data is being accumulated thanks to the ubiquity of social media and micro-marketing.
Thirdly, the growth of fintech is strengthened by the expectations of consumers themselves. The millennial generation is not ready, like their parents, to wait two days for a bank to open Monday after the weekend. They are not ready to wait half an hour for the bank clerk to come back from his lunch break. They are not even willing to walk to the bank on their own feet. The bank must now be available 24/7 and preferably from a cell phone screen.
Finally, sustainable investments in fintech are facilitated by a favorable regulatory environment. Regulation in the financial sector exists to curb excessive growth so that an industry does not grow too fast and hurt consumers. In the case of fintech, regulators in many countries, who understand the importance of digital technologies, have created special so-called regulatory "sandboxes" in which small players and small markets for new products and services can develop in a greenhouse environment.
Fintech develops where markets and talent exist
Factors for the development and growth of fintech innovations are the presence of a significant consumer market, culture and innovation ecosystem, the concentration of technical specialists, and the presence of support, or at least the absence of opposition from the government. Therefore, it is not surprising that the largest number of fintech companies is concentrated in traditional financial centers - New York, London, Singapore, Hong Kong, and also in Silicon Valley, as a key global center of technological development.
In this case, the example of two other not so obvious centers of fintech innovation, located in China and Estonia, is more interesting.
The presence of a huge consumer market and active government support for technological development were key factors in China's emergence as one of the global leaders in fintech. The policy of protectionism and censorship in the Chinese Internet was also an important factor. Behind the "Great Chinese Firewall," shielded from competition by Google, Facebook and Amazon, their own Internet giants have been developed. Trade and payment services became part of their mandatory functionality, one of the main areas of development. Facebook's Chinese counterpart, Tencent, has a universal and extremely popular messenger, WeChat. It is very easy to make payments and transfer money via it. “Ant Financial”, affiliated with Alibaba, operates the Alipay payment system and with its current value of $60 billion, is the largest fintech company in the world. Moreover, by buying US-based MoneyGram, the world's second largest international money transfer company after Western Union, Ant Financial has become a truly global player in the fintech market.
Another not quite typical example of an actively developing fintech center is Estonia. This small country does not boast a large consumer market, but it is known for its openness to digital technology and innovation. Thanks to government policy and its engineering school tradition, Estonia has become the Silicon Valley of Northern Europe. TransferWise, one of the fastest growing fintech companies in money transfer today, is a digital competitor to Western Union and MoneyGram. TransferWise has more than a million customers in 60 countries, making monthly money transfers of about $1 billion in almost all currencies worldwide.
Main directions of fintech
Banks and fintech
The fintech industry is actively transforming banking. Some experts believe that the traditional retail banking model is irrevocably becoming a thing of the past, but for now we can probably talk about a kind of symbiosis, when fintech developments are actively adopted by those banks that are ready to change, allowing them to digitize and keep up with the times. APIs play a big role in this mutually beneficial cooperation - they are a kind of program gateways through which various IT systems and applications can connect and exchange information with each other so that the consumer can receive services that were not available before. For example, it is possible to transfer money through the website or mobile application of your bank to any other bank in different countries of the world, make purchases in an online store, connect a bank card to your page in a social network, etc.
Fintech companies develop entire functional blocks and solutions for certain banking services, such as account management, payments, currency transfers, payroll, pension and insurance projects for corporate clients, online bookkeeping and tax reporting, credit scoring, online and mobile application for clients, etc. Banks can integrate such out-of-the-box solutions into their systems, thereby completely transforming the user experience for their clients. One of the leading fintech companies in this area is the German digital bank and fintech company Fidor, which offers its own platform and ready-made solutions for building a digital bank or implementing individual banking services.
A separate direction is becoming fully digital banks, which exist mainly on the Internet and serve customers through their websites and mobile applications. Such banks do not need physical branches. For example, these are the Russian Tinkoff Bank and Rocketbank.
Payments and transfers
The World Bank estimates that migrant worker money transmissions worldwide equaled $617 billion in 2017, and 75 percent of that transfers was sent to developing countries. For many developing countries, money transfer inflows from people working abroad are an important source of balance of payments stabilization.
Given the growing volume of the international money transfer market, it is not surprising that this has become one of the key areas for fintech companies. The mission of fintech in money transmission is to make transactions cheaper, more convenient, fast and secure.
In addition to improving the capabilities of existing transfer infrastructure through banking systems and transfer organizations like Western Union, fintech offers new channels, such as mobile transfers, cryptocurrency transfers, and P2P transfers. In many developing countries, people cannot open a bank account, but almost everyone has a cell phone, through which they can make payments and transfers. The main advantage of cryptocurrency transfers is anonymity, freedom of action and decentralized cryptocurrency systems. P2P (peer-to-peer) transfers allow ordinary people to transfer funds to each other without the mediation of banks and other financial institutions.
Among the key fintech players in this area are the already mentioned TransferWise and MoneyGram, as well as good old Paypal, whose co-founder back in 1998 was well-known Elon Musk.
A separate, actively developing area in this field is transfers through social networks. Facebook, WhatsApp, SnapChat and WeChat are developing opportunities for their audience to transfer money to their contacts, friends and subscribers.
Digital lending
Online lending is considered the most familiar area of fintech to the citizens of Kazakhstan, as the customer base of fintech companies, the number of transactions they perform and the volume of given funds are growing at a very high rate. According to the media, the number of clients of fintech companies is currently around 250,000 people, but may increase tenfold in the coming years. The total online lending portfolio grew 3.5 times in 2016 compared to the previous year, and 4 times in 2017.
Users find the benefits of online lending, such as making a loan in a minutes, the lack of bureaucracy, transparency, and working with clients that banks are unwilling or unable to serve. At the same time, because the entire process takes place online, online lenders use the most advanced screening and scoring techniques to manage their risks. Whereas a bank, reviewing your loan application, will look at your credit history and ask to see various paper documents to make sure you are a trustworthy borrower, an online lender will look at your online browser activity and check your social media behavior.
Online lending, which has developed the most in Kazakhstan, is mainly for consumer purposes, but other digital credit products, from student loans to mortgages, are also developing in the same way.
P2P lending allows people to lend directly to each other. Fintech companies developing this trend provide potential lenders and borrowers with an online platform where they can meet. The platform will vet a potential borrower for trustworthiness using the aforementioned digital analytics, determine loan terms and find a potential lender or group of lenders who are satisfied with those terms.
Similarly, online lending to small and medium-sized businesses and P2B (peer-to-business) lending, where money from ordinary people can meet the needs of businesses, such as working capital, is developing in a similar way. Private investors in this case get a profitable interest rate for their money, small businesses, which may find it difficult to get a loan from a bank on the flexible terms they need, close their financing needs. And the task of fintech companies is to ensure transparency of conditions, security of creditors and thorough screening of borrowers, using all available digital data in the form of bank transactions, data of online stores and online trading platforms, POS-terminals, etc. The U.S. companies Kabbage and PayPal, which develop a business line called PayPal Working Capital, Square, as well as China's Alibaba and others, are major fintech companies that provide business credit.
...and many, many others
The areas of application of fintech products are endless. The possibilities of this article do not even allow us to briefly mention many of them.
This is also the service of online commerce, including such an important area as the development of online and mobile POS systems, which not only increases efficiency for businesses, but is also of strategic importance to the state, contributing to greater transparency and the fight against tax evasion.
Crowdfunding and crowdinvestment, due to the "wisdom of the masses," contribute to the implementation of many useful and innovative projects that otherwise would not have been born.
It is also capital management with the help of fully automated algorithms, the capacity of which to analyze the market and find the most profitable investment applications of capital, as well as to manage the associated risks infinitely exceeds the human abilities of the most experienced investment professional.
That and big data business intelligence used for segmentation, personalization, contextualization, consumer financial services marketing, customer relationship management, online scoring and risk management.
This is Insurtech, which is actively developing in the online insurance segment, where all the power of big data, all the security of blockchain and smart contracts, all the convenience of the Internet of Things - to manage risk and cost of insurance as efficiently as possible - is applied. It's also Regtech, reducing the complexity and cost of compliance with a variety of financial regulations in today's global world, and many, many more.
The booming fintech industry, without exaggeration, embodies humanity's best hopes for a more comfortable, secure, interesting and prosperous future world.
Source: https://www.akylkenes.kz/ru/p/vse-chto-vy-hoteli-znat-o-fintehe-no-stesnyalis-sprosit