In a recent article, I discussed High-Growth Burn Rates: Am I The Only Entrepreneur Spending This Much? – revealing burn rate and Fintech trends that drive innovation in finance.
Taking it a step further, it’s important to address technologies that are empowering Fintech. Simply put, it’s a hot market! In fact, “The financial technology sector is not just hot, it’s smoking hot. Last year global private fintech companies raised nearly $3 billion, that’s more than triple the $930 million invested into fintech companies in 2008.” (Source: VentureBeat)
Banking and securities institutions will spend $485 billion on information technology in 2014, according to a research by Gartner. This forecast is higher than any other sector.
The financial crisis prompted financial institutions to innovate their technology at an even faster pace and startups are rapidly providing solutions to problems that the sector has faced for years. But what allows startups to solve problems that institutions of this caliber cannot solve on their own? New technologies.
“The financial technology sector is not just hot, it’s smoking hot. Last year global private fintech companies raised nearly $3 billion, that’s more than triple the $930 million invested into fintech companies in 2008.”
High Hopes for Financial Tech Startups
The advent of big data (a popular term used to describe the exponential growth and availability of data ) technologies, easier integration of payment systems and the standardization of accounting data are empowering the creation of new solutions and lowering costs (and thus the entry barriers) in the financial technology market.
Here’s a look at three key trends driving fintech today and in the future.
Fintech Trend 1: XBRL and the openness of accounting data.
XBRL (eXtensible Business Reporting Language) is an XML based syntax that can represent any figure in companies financial reporting. It has become the standard of major accounting software like ExactOnline and Quickbooks.
The open source protocol allows software companies to develop analytics for all financial variables. These analytics can easily be compiled into management dashboards, reports or analyses.
Different companies are standardizing the information provided and adapting it to create better credit scores, decision making, or business decisions. Other startups (like, expense reporting startup Declaree) use this standard to easily communicate invoice data to accounting software.
Fintech Trend 2: The growth of payment systems and money transfer tech.
Since the advent of Paypal and the transfer of money via email, the global payments industry started to detach from banking institutions and fall more and more under the control of the end user.
Multiple startups and companies benefited and are now benefiting from this trend (e.g., see Monitise, a mobile banking and payments service, and half of the new class at Startupbootcamp Fintech — London’s leading Fintech Startup Accelerator).
Square, Apple pay and other prestigious examples of merchant services aggregators and mobile payments companies are trying to get into the old and lucrative market of payments, all powered by easier integration with traditional institutions.
Fintech Trend 3: Big Data, the real leap forward.
Speed, reliability, cost effectiveness, and above all, the capacity to analyze billion of data points. Big data is the game changer in Fintech. Analyzing previously impossible volumes of data can change the way: banks analyze and create credit scores, investment managers compare opportunities, financial algorithms perform light speed trades on stock exchanges.
AWS (Amazon Web Services) and Google App Engine are of course the leading providers of infrastructure for this type of task, even though Microsoft is catching up. Map-reduce technologies for performing operations with data are also getting more affordable and more advanced thanks mainly to the Hadoop open source project.
Building on top of these technologies is not easy, but the direction is clear, it is pivotal for fintech and for financial institutions to be aware of these new technologies and to make the best use of them.
Startup Opportunities in Fintech Sector, Endless
The fintech sector offers unlimited opportunities for entrepreneurs and programmers that have both the financial vision and technical capabilities to make use of existing infrastructure. Equidam is of course looking at these developments very closely and working on integrating these technologies to improve our valuation service for our users. More on our tech stack and future developments will be posted in the coming weeks, stay tuned!
This article has been edited and condensed.
Daniel Faloppa is the Co-founder of Equidam, a cloud technology and financial services company providing tools for SME evaluations; helping both entrepreneurs and professionals gain access to better data analysis tools. Following the cloud revolution that occurred in the accounting and bookkeeping industry, Equidam is bringing the world of financial analysis to the cloud. Faloppa is passionate about finance, technology and startups. He completed a BSc in Economics and Finance at the University of Padova (Italy); graduating cum laude from the MSc Finance & Investments at the Rotterdam School of Management. Faloppa’s goal is to help entrepreneurs succeed and participate in the growth of the highest potential ideas. Connect with @Equidamtweets on Twitter.
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