FinTech – a brief definition
The term Financial Technology, also known as FinTech for short, refers to innovations in the financial services sector. FinTech companies use modern technologies to update and develop traditional lines of business in this industry or to offer completely new solutions.
FinTech in Switzerland – a few facts and figures
Approximately 10% of the world's European FinTech companies are located in Switzerland, of which almost half, 46%, are based in Zurich.
Around 30% of Swiss FinTechs offer financing-related services. Asset and wealth management are at the top of the list, followed by FinTech products for payments.
At the 2016 European FinTech Awards, Swiss FinTech start-up Knip collected the 'Best InsurTech Company' award for their mobile insurance manager.
Blockchain, Bitcoin, crowdfunding, Robo-advisor – the buzzwords of the FinTech scene
The Internet is awash with cryptocurrency and cognitive analytics and abuzz with talk about the power of Blockchain, the Bitcoin has been a topic of conversation for more than ten years now, and it is becoming increasingly common to hear phrases such as 'FinTech ecosystem' or 'peer-to-peer platforms' in places other than FinTech conferences nowadays.
We have tried to define each of these terms as simply as possible:
As the name suggests, the term Bitcoin means 'digital coin'. This virtual currency is not printed or minted and thus is not controlled by any institution. Its value is determined by supply and demand. Although Bitcoins were still worth hardly anything back in 2009, they have become increasingly popular and have gained in value over the years. In July 2016, they were valued at around €600.
Bitcoins can be purchased on online marketplaces, and are then kept in a virtual briefcase referred to as the 'wallet'. As a result, users must first choose a wallet. Payments can be made with Bitcoins in as little as ten minutes to an hour, in contrast to bank transfers which usually take at least one business day to complete. In addition, Bitcoin transfers are usually free of charge.
LBlockchain is a decentralised database that maintains a continuously-growing list of transactions and data records comparable to a chain to which new elements are constantly added. Once one block is finished, the next is created, meaning that each block contains a checksum for the previous one.
Although this blockchain technology is used in cryptocurrency, it is also attracting increasing interest within the IT industry.
The Bitcoin is a cryptocurrency - a monetary system based on cryptographic principles. Cryptography is the term given to information security and encryption based on mathematical calculations.
Crowdfunding can be used to finance start-ups, projects, business ideas and much more. In such cases, the seed capital is held not by a bank but by the crowd - many different individuals who each make a small contribution. Depending on the project in question, the crowdfunder - that is, the donor - receives something in return. This can range from money or contributions in kind to other services.
A form of asset management in which investment decisions are increasingly or completely made by automated algorithms, hence the terms 'robo-advisor' or 'algo-banking'. Read more about Robo-Advisor from Swissquote.
The networking possibilities offered by the internet mean that peer-to-peer (P2P), otherwise known as the 'sharing economy', is becoming increasingly important. This platform enables private individuals to benefit from services or products offered by other private customers. Undoubtedly the best known example of this concept is AirBnB, which offers overnight accommodation in private dwellings.
The internet platform on which such offers are provided and claimed is known as a peer-to-peer platform (P2P platform).
Are Swiss banks succumbing to FinTech fever?
Financial Technology, or FinTech for short, is not a recent phenomenon. Older breakthroughs such as the credit cards launched in 1950, the first ATMs or electronic trading on stock exchanges are as much a part of financial technology as the Internet, for example.
Nevertheless, the buzzword FinTech has only gained ground in recent years due to the rise of start-ups using their compact structures and streamlined processes to rapidly develop new technology and make particularly significant strides in the digital environment. This technology has shaken up the financial sector in numerous ways, from online loans, payments and bank transfers to crowdfunding, virtual currencies and digital investment advisors.
Some banks regard these new FinTech offerings as a danger to their traditional business model rather than a supplement to their existing services. The Bitcoin virtual currency, for example, already enables consumers to make payments without enlisting the help of their bank. Electronic asset management, commonly referred to as 'robo-advisory', could replace traditional investment advisors.
In contrast, other financial institutions are welcoming and promoting this trend as something that opens up completely new opportunities to customers, companies and investors alike. Swissquote Bank CEO Marc Bürki is convinced that this digitisation and new technology has a bright future, but acknowledges that financial institutions must adjust their business models. The area of robo-advisors offers particularly significant potential.
"Computers are better than their human counterparts when it comes to asset management, as they are completely neutral when it comes to emotions and classic forms of misconduct in investment. They can also run through thousands of scenarios and make adjustments to portfolios in seconds, something no human asset manager could ever do."
The FinTech sector is experiencing a rapid and unstoppable rise. The intelligent use and integration of new technologies promises to add value for all concerned. We live in exciting times!