You have probably heard the word "FinTech" which has been widely used over the last decade. While we try to understand what it is and predict if and how it will revolutionize the financial industry, a new term, “TechFin” appears to be gaining recognition.
Both fintech and techfin aim to use technology to provide financial solutions. Fintech is indeed an abbreviation of the words "Financial Technology". Then, what is techfin, and how is it different?
Although techfin sounds like fintech, techfin companies mainly differ from fintech companies in their business and the essential services. The techfins are technology companies, who have been providing software solutions that are not primarily finance-related, and now seek to launch financial services. They already have access to customers and massive amounts of data from their relationship with their customers. They also can process and analyze these vast amounts of data. Even though gathered from a non-financial relationship that can offer financial services, their access to the customers and the data seem to be their most critical advantages. There is a wide range of sources of this data and the techfin companies. The first that comes to mind is social media companies like Facebook and search engines like Google. They have access to information about social preferences and user activities. E-commerce companies, like Amazon, have data on customer demand and payment history. Like Apple, telecommunication companies and hardware companies can gather information about user behavior, location, and activities. This data can be used to price an insurance policy or to evaluate a customer's credit risk.
On the other hand, fintech companies' core business is financial services. Although fintech generally refers to startups, incumbents in the finance business, such as banks, also use digital technologies to provide better services and improve efficiency. Online banking and mobile banking applications are the most well-known fintech solutions offered by financial institutions. The fintech startups typically pinpoint an inefficiency in the processes used to provide financial services and remove that inefficiency using digital technologies to provide better services. These companies apply APIs, artificial intelligence, blockchain, and other technologies to offer innovative solutions for various areas such as payments and money transfers, roboadvisors, P2P lending and borrowing, and open banking. The most well-known fintech companies are Revolut, Paypal, Zelle, Starling, and Monzo. Unlike techfin companies, fintech corporations typically don't have the customer data already collected, brand loyalty, and massive financial sources that they can exploit when developing solutions. They also rarely have the license required to operate in the financial markets. Therefore, some fintech companies prefer to cooperate with the traditional financial companies or sell themselves to another financial company. For instance, TSB Bank in England has partnered with Aptap, a fintech startup, which provides intelligent bill and subscription management tools to its clients. JP Morgan acquired WePay, an online service provider, in 2017.
To conclude, both fintech and techfin companies will contribute to the financial industry by providing innovative solutions. They also improve and offer different ways of financial services. It wouldn't be surprising to see more cooperation, partnerships, and M&As between the fintech companies, techfin companies, and the incumbents of the financial industry in the future.
Prof. Dr. Cenktan Özyıldırım
References:
Zetzsche, Dirk & Buckley, Ross & Arner, Douglas & Barberis, Janos. (2017). From FinTech to TechFin: The Regulatory Challenges of Data-Driven Finance. SSRN Electronic Journal. 10.2139/ssrn.2959925.
