FinTech, the concept that emerges from the union of finance and technology, is still a relatively recent phenomenon of startups trying to transform the financial industry. It includes, according to the World Economic Forum, all online or mobile solutions for payments, insurance, transfers, investment, accounting instruments and credits, among other services. Randall Castillo Ortega, the founder of SME backer RACO Investment, discusses why FinTechs are now having more success than ever.

Accenture reported that FinTech investments grew 201% between 2008 and 2013. It, together with the Partnership Fund for New York City, released another report that shows that global private investments in this sector tripled between 2008 to 2013. It grew from $928 million to close to $3 billion. It is now estimated that it will be $16 billion by 2023.

These ventures have seen explosive growth partly because of their relative advantages over the traditional financial system. These include lower costs, lower commission rates and access from any part of the world. All that is required is an Internet connection.

Explains Castillo, “Millennials are the biggest users of mobile technologies, and, according to Accenture, young people are almost twice as likely as older people to switch to a bank without physical branches or to turn to technology companies that offer banking services.”

However, the financial sector recognized the need to include innovation in its business processes, products, customer acquisition, retention, and product development strategies. There are many investors who are interested in Fintech. Many small companies are using technology in a new way because of the creativity and drive of idea accelerators.

This phenomenon isn't limited to Asia, Europe or the US. These investments are growing fastest in Europe, where countries like the United Kingdom and the USA lead the way. This type of startup can also thrive in Latin America and the Caribbean.

On some occasions, FinTech companies find in markets of little interest to banks the ideal space to innovate. For example, the difficult access for the self-employed and SMEs to certain financial products has led to the appearance of companies such as Finanzarel, oriented to advances of invoices and discount of promissory notes, Arboribus or Loanbook, dedicated to crowdlending, or Deudae, of debt compensation.

Other times, FinTechs are able to improve basic services, offering a more complete and affordable one from the user's perspective. International transfers with currency exchange, for example, need at least five days to become effective. They also have large costs for the client. This has been taken advantage of by companies such as TransferWise, which allows its customers to make bank transfers in another currency with a lower cost than that charged by banks and in a shorter time than that of banks.

A FinTech, due to the use they make of technology, is a type of company that analyzes well the data it obtains from the different media in which it works. In addition to having a high capacity for interaction and, in many cases, adaptation. Being one of its objectives, the simplification of banking services, they achieve, in success cases, that the consumer experience is agile and simple.

Although, in part, they are competitors of banks, some of the solutions developed by FinTech companies are taken by banks to offer services with added value. Examples can be found in Apple Pay, Google Pay and others, which are now working with credit cards and banks to come up with new solutions.

About RACO Investment

RACO Investment is a financial investment firm serving small- and medium-sized companies in Panama and Costa Rica. It was founded by Randall Castillo Ortega, an expert financial adviser who has his roots in the import and export industry in Latin America. The firm has helped numerous startups find the financial support they needed to get off the ground. It has also contributed bridge loans to assist those looking to restructure or improve their operations.

— WebWireID289604 —