Fintech and Insurtech - A New Ecosystem
- Aug 08, 2019
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After all, where does this unstoppable revolution called digital transformation take us?
It should be clarified that Fintech and Insurtech have a double meaning: i) alluding to innovative technology in the financial area; ii) designate companies that use this innovative technology to change business / performance models.
It's like electric cars - some have a range of 500 km, others only 50, but everyone says they are electric. Similarly, cases of digital transformation in the financial sector range from the use of artificial intelligence, APIs, IoT, blockchain ... even there are those who think that just having a website that works on PCs and smartphones. Divergences about what is "innovative technology" will continue / accentuate as innovation speeds up and increases the digital distance between the front platoon and the latecomers.
Some will think that only startups use groundbreaking technology (eg geniuses in data science building predictive models). In a simplistic view, we would have on the one hand new, agile, Fintechs and Insurtechs, with disruptive and high potential models, good digital skills, few clients and limited funding; and on the other hand old incumbent, cautious, very regulated, with stable models and limited profitability, legacy skills, many clients, large databases (perhaps of poor quality) and investment capacity. However established institutions can also be innovative and agile, especially when there is a lot of money at stake - for example in the case of algorithmic trading in the markets (shares, bonds, derivatives, foreign exchange ...), it was not the centenary nature of the incumbents that prevented them from hiring young people mathematicians to make money via machine learning, whether markets go up or down.
In addition to the two "sides", large technology and e-commerce companies (Alibaba, Alphabet, Amazon, Apple, Facebook, etc.) also integrate financial functions in their value chains. And they hold agility, innovation, digital skills, immense customers, big data and muscle to invest in various markets. The boundaries between sectors (and between countries, particularly in the financial area) are collapsing.
The vision of the expected future evolves rapidly. First it was more antagonistic: startups aiming to revolutionize existing versus incumbent businesses by facing them as threats. Today many banks, insurers and new Fintechs and Insurtechs realize that the collaboration is mutually advantageous (partnerships, participations, incubators ...). There are several variants ¬ sometimes mixed - eg a Fintech bank competes with other banks in its own country but in other geographies provides advanced credit risk forecasting services to local banks. In Portugal, about half of Fintechs and Insurtechs aim to collaborate or provide services / software to existing banks and insurers.
Finally, to mention that "ecosystem" does not have here an ecological type connotation. It is a new economic (and technological and skills) system that impacts all: organizations (old and new), employees and consumers / users.