Like most of you today, I spend a lot of time reading about fintech. You can get massive amounts of news reports and companies talking about fintech, saying that they’re part of Fintech. But what does “fintech” really mean?
Fintech is not new, but it has been given a facelift. Most would say that financial technology (or FinTech) has been around for a long time, and they’re correct. It isn’t new per se, but it is evolving faster now than ever, and changing how business is done. What makes Fintech so disruptive that it’s affecting all the institutional pillars in one strike. The pillars (Banking, Capital Markets, Private Equity, Insurance, Legal, Regulatory), all of which are long-standing institutional pillars in our business society that had been static – and stagnant- for too long.
Like many new sectors, in order to make sense of it and what it’s doing, you need to break it down into all the component parts to see how each affects what we’re doing or working on.
Fintech is for either B2C business to consumer financial disruptions which there are many changes occurring industry-wide that benefit the consumer. While most are at the banking level of disruption, insurance and Regtech are not far behind.
Let’s take a minute to talk about B2B (Business to Business) fintech. B2B Fintech is focusing on altering the institutional pillars that affect how a business uses them to acquire the services they offer or capital.
Fintech B2B disruption has a number of segments that are being disrupted simultaneously, causing issues for long-standing institutional pillars of banking, insurance, legal, and regulatory.
Let’s look at all the five segments of B2B Fintech
Alternative Finance (Altfi)
Capital raising was ripe for change the collapse of the financial markets in the USA and worldwide became the final straw that opened this market up. Today, we have alternative finance portals for debt or equity that help businesses access capital directly from individual investors, bypassing banks, venture capitalist, private equity groups, and the like.
This is one of the oldest established financial industries, and for decades companies involved in it have done little to innovate, and the market has stayed fairly stagnant. Today, we have a number of new players that have left those institutions to set up the new Fintech Insurance companies. They’re making change a reality, and at the end of it all, it’s the company that ultimately benefits. For decades, they paid the high cost of old institutional ways of operating and servicing their clients, but no longer.
Many in the legal sector say that you can’t disrupt the legal business. This statement is partly true, and false. Yes, it’s true we still need lawyers with the expertise to provide us advice in operating our companies. But technology is changing how lawyers work and deliver those services to clients. No longer does a business need to pay high costs to have documents created, or to create entities. Now don’t make the mistake of assuming that this replaces the lawyer, which it does not. The lawyers that embrace Fintech Legal understand their profession is going through a massive evolution, and that adapting means staying competitive, and driving value for their clients.
Of all the segments that felt the hit of Fintech, the one that was hit the hardest was probably banking. The banking sector in the early days of Fintech made the mistake of dismissing these early entrants as nothing more than fly by night. Now, looking back we know these “fly by nights” are now the norm. Banks are feeling the attack on all fronts, from consumers, business, wealth management, and every other subsector.
This final segment is crucial for Fintech B2B to become explosive. The underlying issue with all the segments in Fintech is that the traditional pillars all rely on regulatory bodies to protect them. The global marketplace has regulated companies for years for licensing, capital raising, etc. RegTech is changing how we can open accounts with ID Verification, where money comes from with AML, how we validate companies,and conduct backgrounds checks, all in realtime and in a cost effective manner. There are many areas in regtech that are evolving, making it easier for businesses to reach their goals.
As you can see in the image, all five segments are changing because of one constant, the business. Bringing all the five segments together requires a platform that aligns itself with the businesses at heart of it all, one that can bring a company through all five processes in a seamless manner, allowing Fintech to grow exponentially.
Standalone disruptions are not going to work if we don’t also include the the second “B” in B2B. To date, fintech companies involved in B2B have only enacted tech disruption from the institutional segment perspective, and put little efforts in solving the overall business problem.
These innovators are doing a great job, but as I said, for this to really explode on a global scale the second “B” must also be considered, and in fact, should be front of mind.
Let’s look at alternative finance in terms of equity crowdfunding or debt: each have a common goal to help companies access capital more efficient from the crowd. Equity Crowdfunding portals are in the business of bringing in companies, attracting investors, and performing due diligence, KYP, KYC, AML, ID Verification, Payments, and ensuring all closing docs are online.
Now what most don’t know is that before companies are listed, the portal’s professional compliance staff go to work. Their entire job is to review all the due diligence information provided by the company to the portal prior to being listed, and approve or decline. The amount of Information that the portals need is extensive, as they need to make sure there will be no issues with their securities regulators, that they’re working to prevent fraud, and also building credibility with their investor base.
Many feel that one day this requirement is going to be removed, and I can assure you it won’t be. The operators of the portals are either professionals from the investment sector, or from private equity, and they’re not going to take that risk themselves, or hurt their investor base. That base relies on them doing all the heavy lifting before the deal gets posted on their platform.
So now we see how portals are changing the way that businesses access capital, and what they need. It isn’t an easy process for the portals. It’s easy to see the ongoing issues portals are facing with on-boarding and post-transaction compliance related to the businesses they are helping.
The fintech sector is evolving rapidly, and the norm is no longer acceptable. For those in Fintech, we have much work to do to truly and permanently alter current institutional pillars. They haven’t made any progress in B2B and are now scrambling and acquiring their way into the market. Players like Alphabet, Alibaba, and Microsoft are already making their presence felt, and many more are coming.
Oscar Jofre is a Chilean-born entrepreneur and technology innovator; Oscar brings a background of 25 years in senior management, marketing, investor relations and sales with a proven pattern of results-focused leadership. Oscar is currently Founder, President/CEO KoreConX, a free all-in-one solution that helps companies navigate the process of raising equity capital, and simplifies shareholder communications to reduce risk. He is also a member of the Crowdfunding Intermediary Regulatory Advocates (CFIRA) in the USA.