Paper Fintech Open Journalof Economicsand Commerce 2019
Paper Fintech Open Journalof Economicsand Commerce 2019
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Fintech
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Fintech
Jairo Toro Diaz1*, Melissa Duque Vélez2, Maria Camila Ortiz Chamosa3
Research professor at Universidad Autonoma de Manizales, Colombia.
*Corresponding Author: Jairo Toro Diaz, Research professor at Universidad Autonoma de
Manizales, Colombia, Email: [email protected]
ABSTRACT
Currently, many people manage their business and their money online, for this reason finance and
technology companies, usually Startups are taking advantage of this situation to look for new financing
options and money management different from traditional banking and in this way offer crowdfunding
platforms, payment by mobile phone and among other financial services that can be done in a virtual, easy
and economical way, that is why this work presents as a general objective to perform a literature review on
Financial Technology or Fintech (Financial Technology). For this, concepts of crowdfunding, Crowdequity,
Crowdlending, Insurtech, cryptocurrencies, their different applications and case studies in countries where
technological finances have been most successful are addressed. Documentary analysis is used as a
research method.
Keywords: Fintech, Crowdfunding, Crowdequity, Cryptocurrencies
JEL Classification:G15, F31, P45
prospect of our study. Useful sources of automated teller machine (ATM) in 1967
information are carefully reviewed and byarclays Bank arguably marks the beginning of
extracted from them the necessary information, the modern evolution of FinTech today (p.4).
which is then integrated and developed.
Since the late eighties, finance has been an
THEORETICAL FRAMEWORK industry based on the transmission and
manipulation of digital information. In fact, the
Financial or Fintech Technology (Financial ATM is often the only point for most consumers
Technology) today in which financial transitions move from a
Definition of the Concept purely digital experience to one that involves a
physical product (ie, cash).
"Fintech is a concept that arises from the union
of the words finance and technology, and is a Since 2008 there has been a rapid expansion in
relatively recent phenomenon of companies the types of businesses that create and deliver
trying to change the financial industry through technology to provide financial products and
the incursion of online solutions for financial services.It is important to distinguish three main
processes" (Cardenas, 2015). eras of evolution of FinTech. From about 1866
to 1987, the financial services industry,
"The Fintech comprise different types of
although strongly interconnected with
payment services, financial services, peer
technology remained largely as a similar
transactions, alternative lending platforms and
industry, at least in public perception, a period
new crypto-currencies. And while some of these
that characterize as FinTech 1.0. However, by
companies and new systems such as Bitcoin,
1987, financial services, at least in developed
have apparently been very volatile and
countries, had become not only once again
downright confusing, more and more it has an
highly globalized, but also digital. This period,
appeal to much greater both consumers and
which we characterize as FinTech 2.0,
entrepreneurs "(Glucki, 2016)
continued until 2008. During this period,
"The FinTech sector is the set of non-financial FinTech was dominated mainly by traditional
companies that use digital technology and regulated financial services industry utilizing
associated tools -Computer cloud, blockchain, technology to provide financial products and
big data, artificial intelligence, social networks, services. However, since 2008 (the period are
etc. to provide financial services to consumers known as "FinTech 3.0"), this is no longer
and businesses in a innovative way and under necessarily the case. New startups and
new business models. FinTech industry established technology companies have started
innovations have the potential to transform the to offer financial products and services directly
financial sector and help provide services to to businesses and the general public (Arner et al.
social groups traditionally blind eye by banks (2015).
"(Development Bank of Latin America, 2016). Fintech Companies
Historical Review The FinTech sector is the set of non-financial
companies that use digital technology and tools
The origin of the term Fintech dates back to the
associated with cloud computing, blockchain,
early 1990s and referred to "Technology
big data, artificial intelligence, social networks,
Consortium Financial Services", a project
etc. To provide financial services to consumers
initiated by Citigroup to facilitate efforts for
and businesses in an innovative way and under
technology cooperation (Hochstein, 2015).
new business models. FinTech industry
However, it is only since 2014 (Google trend
innovations have the potential to transform the
search, 2018) that the sector attracts the focus of
financial sector and help provide services to
regulators, industry participants and consumers
social groups traditionally blind eye by banks.
alike.Arner, Barberis and Buckley (2015) assert
(Development Bank of Latin America, 2016).
that FinTech is not an inherently new
development for the financial services industry. The technology giants and telecommunications
In fact, the introduction of the telegraph (first and some large retail chains have also decided
commercial use in 1838) and placement of the to seize the opportunity opened up by the digital
first successful transatlantic cable in 1866 (by revolution to enter the financial business, both
Atlantic Telegraph Company) provided the emerging markets and developed countries. For
infrastructure for the first great period of example, Alibaba, the Chinese e-commerce
financial globalization in the late nineteenth giant is also the largest provider of digital
century Subsequently, the introduction of payments and fund management in China.
Amazon offers a payment platform (Amazon players like Google, Facebook, Amazon.
Payments) and a platform loans and credit line Gonzalez has also indicated that these
sellers on its platform (Amazon Lending). companies "have the opportunity to create their
Google, Intel, Apple, Samsung and other big own packages with financial products and
names are also in the market with their own services. And these packages will not be easy to
innovations, on their own or in partnership with reproduce by banks "(Gonzáles, 2014).Then the
other companies. The Chairman of BBVA, geographical location of the most important
Francisco González, has noted that the main companies in FinTech shown:
competitors of banks in the future will be
people achieve their financial goals in the short They Offer an Experience Simple and Quick
term, incorporating different techniques and Purchase
teaching savings. MangoPay associated. It has Through a user-friendly digital interface,
more than 30,000 users. accessible on multiple digital channels that are
Business Groups available at any time and anywhere.
They are Completely Digital Business
The FinTech sector is composed of two groups
of companies: No branches, ATMs or legacy systems, items
impacting operating costs of banks. According
New Ventures to the Corporation Deposit Insurance (Federal
They are mostly young companies. This group Deposit Insurance Corporation) in the United
of companies has innovated both solutions States, the average cost of these items over
offered as business models and tends to wages related reaches between 51% and 60% of
total operating expenses of commercial banks in
specialize in niches within the value chain of
United States (FDIC, 2016).
banks.
They Understand Customer
The average age of a typical company in the
first group is only six years (Venture Scanner, They have tools to understand customers and
2015), but that universe of companies is not meet their needs and protect it from fraud, such
as big data analytics, predictive modeling and
restricted to small businesses.
artificial intelligence (PWH, 2016).
By 2015, more than 36 companies had reached
Leverage Technology
the level of "unicorns" companies founded since
2003 with less than $ 1,000 million (KPMG / To enter segments where banks and other
CB Insights, 2015) valuation. traditional providers are inefficient or suffer
from a lack of transparency or information
Tech Giants asymmetries. In its analysis of the impact of
E-commerce and telephony, such as Amazon, FinTech companies the British government
Samsung, Vodafone and Alibaba. This group points out that the business model "allows
tends to be located in several segments of the [companies] to serve a larger volume of
banking business simultaneously, and integrates consumerslow value, rather than what banks do,
financial services to its business model and which is to serve a low volume of high-value
service package. (Development Bank of Latin consumers." This allows them to present
America, 2016). solutions that promote financial inclusion (UK
Government, 2015).
Advantages of Fintech Companies
Fintech Industry Segments
The FinTech companies disaggregate the value
Next, a description of the main segments where
chain of a bank to enter the market with digital
FinTech companies work and some companies
services in the various segments that compose are identified to illustrate its operation is
both which relate directly to the client (front- offered.
office) and those conducting final or
intermediate functions support customer (back Loans
office) and facilitating processes between these Platforms include loans from person to person
two (middle office). (peer to peer) and companies that make invoice
Essentially, FinTech companies use new discounting, they give microcredits, trade
technologies management and analysis of large finance and working capital. Platforms loans
person to person contacted investors with
data, social networks, artificial intelligence,
borrowers without the presence of a financial
cloud computing, NFC2 and encryption, among
institution. Only the investor bears the risk of
other innovations to offer solutions that are very
the loan, which can diversify through fractional
convenient for customers for three reasons: the investments. It also includes companies that
ease with which they can be used, the speed provide risk analysis and business credit
with which the service, sometimes in real time information. Examples: Lending Club; Prosper,
is provided, and the cost affordable.These Afluenta, On Deck; Kabbage; I delete;
companies differ from banks in several elements NoviKap; Affirm; Patch of Land; Avant; Sofi.
that make it competitive: (Development Bank of (Development Bank of Latin America, 2016).
Latin America, 2016).
traditional are that they do not belong to any Lending Club, ZenCap and Afluenta. The latter
state or country and can be used worldwide is a platform loans to people who was born in
alike. They are decentralized: are not controlled Argentina and recently received US $ 8 million
by any state, central bank, financial institution investment by the IFC and the fund Raising
or company. No intermediaries: transactions are Equity to expand in Latin America.
made directly from person to person. Bitcoins (Development Bank of Latin America, 2016).
can be changed to euros or other currencies and
Companies have emerged that specialize in risk
vice versa as any currency (IEB, 2016).
analysis to banks in emerging markets. Lenndo,
Examples: Bitcoin; Bistamp; Xapo, BitPay.
a Singapore company, uses algorithms that
Fintech Companies and SMEs analyze risk based on behavior patterns and take
data of the individual in social networks-Face
Digital technology and other innovations have
book, Twitter and other networks- to prove
enabled FinTech companies efficiently serve
identity and its ability to predict and payment
areas traditionally underserved by banks as
behavior.
SMEs. Three innovations in particular are being
used to benefit this segment: financing This benefits to millions of potential consumers,
platforms, electronic markets and invoice especially young people, who have stable
discounting services. (Development Bank of salaries but have no bank account.
Latin America, 2016).
Lenndo has a permanent presence in India and
Platforms Financing (Loans and Credit Lines) the Philippines and is incipiently in Colombia.
In Latin America, Destácame, a Chilean
In general, companies lend small amounts and
company, uses a similar methodology but based
loans do not require collateral. They use
on the individual's behavior with service
proprietary and non-traditional methodologies
providers such as utilities,
for analyzing the credit risk of the applicant and
set interest rates on loans and credit lines. For EMarket Places
years, government agencies and development
Other solutions for small businesses have
banks tried that banks lend to SMEs small
emerged from electronic markets. In 2012,
amounts, adjusted to the size of the business.
Amazon, eBay and Alibaba began offering
(Development Bank of Latin America, 2016).
certain customers financing to cover working
They also discussed the credit assessment was capital needs.
not based solely on financial and accounting
Two years later payment processors like PayPal,
data, but used "soft" information, this is one that
Square and SumUp and telecommunications
derives from the knowledge of the customer, its
companies such as Telmex and Safaricom
business and its environment, but that is
decided to do the same (Development Bank of
expensive and is not profitable to do under the
Latin America, 2016).
traditional model of production and distribution
of a bank. According to the World Economic Fourm, this
However, for FinTech both are possible: first, market segment is destined for great growth
because being models of fully digital business given the large volume of information that non-
are lighter in costs and secondly because financial companies have their customers near
alternative methods of credit analysis based on future and therefore the ease with which they
large data allow us to collect and analyze very can assess credit risk same (WEF, 2015).
quickly multiple data on the life of the owner, Financing Bills
your credit history, the business sector and its
customers and suppliers. (Torres, 2008). Traditionally, invoice discounting allows large
companies a relatively inexpensive form of
Among the countries with the highest number of bank financing, but has been out of reach for a
transactions in these platforms include the small business for its low billing volumes.
United States, Britain and China. As in many Companies in FinTech as MarketInvoice
other areas of the FinTech services, China has (England) and NoviCap (Spain) processed
experienced exponential growth in this segment, within 24 hours and online application based on
growing to about 1,500 platforms in 2014, when the value of loans bills.
there were 20 of them in 2011. In Africa,
lending platforms are growing in countries such Credit risk models are based on the frequency of
as Kenya, Tanzania and Ghana (WEF, 2015). use of the service and repayment of loans.
Some names in this space are WeChat, OnDeck, (Development Bank of Latin America, 2016).
Crowdfunding (UP GLOBAL, 2015).Born in the system work (Mollick, 2014). The
2005 Kiva.org platform, the first website Crowdfunding helps finance dreams and
microcredit for entrepreneurs and low-income aspirations of the community (BOTTIGLIA &
students, has provided credit to more than one Pichler, 2016) is a solution to the problem of
million people, after Kiva would follow others financing because banks do not pay easy and
Prosper.com (2006) platforms and has many requirements to the allocation of
LendingClub.com ( 2007), born in 2008 credit, SMEs in Colombia face serious
Indiegogo which was used to finance the difficulties in accessing credit; Crowdfunding is
Sundance Film Festival in 2009, Kickstarter, the a collective financing tool available to advance
world's most important platform born, as of ideas or for business expansion (ROSA, 2015),
April 2017 had raised 2.980.169.711 millions of because bank credit is a constraint that SMEs
dollars, with more than 123,067 funded projects have to develop their economic activities (Perry,
successfully since 2017 there are more than 2007).
2,000 crowdfunding platforms worldwide
CrowdBlending Platforms
(LAUNCH, 2017).
Crowdlending platforms applying for
Platforms on the Web allow you to present ideas
registration of investors and companies or
and make them public, the aim is to make other
individuals, firms providing financial data.
people make contributions, either for a social
cause or to finance an idea or business project, it Those platforms that provide individuals act
has a set time days or months, donations are very quickly, requesting personal data of
made through electronic payment, credit card or borrowers who rely on quick credit analysis. It
other forms such as bank transfer, remittances is possible to invest in different segments of
or payments PayPal, Payoner (OTERO, 2015), loans, both credit rating and target loan
with the process comes three actors, who seeks (reforms, aggregation, etc.).
and needs funding for the idea or project, the Platforms focused on lending to companies
financer and the interaction platform for usually have their own model of risk analysis
facilitating communication among key actors and classification, also using public ratings
(OTERO, 2015). companies like Experian or Informa. The loans
Historical Review are usually approved with collateral and,
subsequently, the information consult the
Crowdfunding is very old dating from the first
investor / donor is drawn future.
century. C., in Rome Cayo Clinio Macenas
patronized artists and poets, its name the word Some platforms discounted notes or other
emerged mecenazgo, later in the 17th century effects, in the short term, using it as collateral
the model was used subscription to finance the for the recovery.
printing of books, as retribution the donor was The interest rate can be set directly by the
mentioned on the cover (BRUNTJE & Gajda, platform as a result of the classification, or let
2015); in 1883 and 1884 Joseph Pulitzer used investors to bid as an auction, thus facilitating
his newspaper to finish the Statue of Liberty in also more risky for the company but a more
New York, gave donors a replica of the statue, transparent market.
managed to raise in six months 100,000 today to
this mode is known as Crowdfunding and a There is diversity of models on how the shares
formula for financing projects and ideas that use are managed on the loan, some platforms
the Internet as a communication channel in receive the amount to invest and they assign it
order to raise funds (VELASCO, 2013). to the requested loan.
Ethan Mollick, who in 1997 conducted the first Even some platform has an option which is
studies on the Crowdfunding phenomenon and invested in all loans that have a certain
regarded him as an opportunity to finance classification, thus diversifying the risk
companies (Mollick, 2014); Gutiérrez explains automatically. Others, on the contrary, exert
the Crowdfunding as project financing among mere intermediary. Revenues platforms tend to
several people who want to support him come from a success fee on the amount
(Gutierrez, 2010). Ariño, it expresses that the financed, between 2-7% and an annual fee by
Crowdfunding is successful thanks to new the lenders. The platform also is responsible for
technologies (Ariño, 2009) to Mollick certifying that the collateral (real, personal, or
Crowdfunding success is due to the low rate of effect) is correct, and to carry out all legal
fraud, the entrepreneur is honored and this helps matters (registration of mortgage loan signing),
tracking the loan until maturity, even in case of controlled by its developers, and used and
default (Financial Disclosure Observatory, accepted among members of a specific virtual
2014). community
Crowd Equity Platform Digital currency, however, is a form of virtual
Some of these platforms are aimed at currency that is created and stored
professionals, who generally invest hand electronically. The crypto currency are a type of
promoter / platform, others focus on the retail digital currency, but not unique.
investor. Both require the registration of The crypto currency are therefore a subset of
investors to access information projects or digital currencies based on cryptography.
companies seeking capital. According to the online newspaper Oro and
Companies provide financial information and Finance (2014), TheOxford Dictionary, It
information about your business plan, the included the definition of its translation
market competition. Some platforms, especially (cryptocurrency) last May:
those aimed at retail investors, exercise some
"A digital currency that uses encryption
sort of due diligence (Torres, 2014).
techniques to regulate the generation of
Regarding accessible information; professional currency units and verify the transfer of funds,
investors, who invest a significant minimum of and operates independently of a central bank."
the total requested by the company are provided
with access to the company and the presentation TheCambridge Dictionary, meanwhile, has
of its managers. defined thisword as:
In the standard case, more investors, the "A digital currency produced by a public
information published on the web and those network instead of by any government that uses
questions that investors can make is limited. cryptography to ensure that payments are sent
(Financial Disclosure Observatory, 2014). and received safely" Taken from:
This business model is focused on the https://dictionary.cambridge.org/dictionary/engl
development of new risk models, reducing ish/cryptocurrency
operating costs (through automation and digital Historical Overview
distribution) in the use of so-called big data and Crypto prefix comes from the Greek word
special attention to improving the experience of kruptos, which means hidden, secret.
the clients. Cryptography is the study of methods of data
From another perspective, technology has encryption, mainly used to send a message
advanced so much in recent years12 the time safely and privately, and for security and data
when complex algorithms replace human authentication.
operators in the market looms nearby The crypto currency are backed by mathematics,
(Antonakes, 2015). which means it can not be set by a single group
Financial robots, such as High Frequency or person. Criptocurrency are not linked to the
Trading (HFT) and made 55% of stock trades in availability of physical assets, as in the case of
the US and 40% in Europe, which for many is a gold.
systemic risk considerable13. Criptocurrency use a distributed network to
In addition, the latest generation of these cyber enable payment P2P - peer-to-peer (entre pares,
mills is based on systems of cognitive in Spanish), a system transaction verification
computing enabling functionality as investment without third parties. In order to maintain this
advisers (roboadvisors) given their capacity for security, crypto currency uses mathematical
learning, testing of information and exploitation algorithms and a record of public accounting
of big data (Chishti and Baberis, 2016), credit (called blockchain or cadenas de bloques, in
cooperatives face the challenges of the financial Spanish) so to ensure that every transaction that
sector [...] | Ricardo Palomo-Mediterranean takes place is legitimate and prevent fraud.
Economic Lefty 2017 29 | ISSN: 1698-3726 |
ISBN-13: 978-84-95531-84-1 | [289-310] They are based on algorithms which is defined
as a orderly systematic group that measures and
CRYPTOCURRENCY OR COINS ENCRYPTED allows a calculation and finds the solution of
Definition and Concept problems. In math, logic, computer science and
The European Central Bank (ECB) defined in related disciplines, an algorithm (Greek and
2012 'virtual currency' as "a kind of money Latin, dixit arithmos algorithms and eastern
unregulated, digital, broadcast and usually Greek, which means 'number'
by Russian programmer Vitalik Buterin, in the industry. The company based in Hong
ethereum works in a completely different way Kong raised about $ 15 million in its initial coin
than Bitcoin. Although can do many of the same offering in July 2017 and immediately acquired
things that Bitcoin can do, its main purpose is to 20,000 registered as part of the collection users.
act as a platform for creating distributed Changpeng Zhao, CEO of Binance, has an
applications.The biggest difference between impressive resume with years of experience in
Bitcoin and ethereum is the use of blockchains. criptocurrency. He was Director of
While Bitcoin Blockchain contracts records Development at Blockchain, Co-founder and
showing how digital funds have moved from Chief Technology Officer OK Coin, and
one place to another, Etherum has expanded this Founder and CEO of BijieTech before working
concept. The blockchain of ethereum uses a on Binance.
scripting language much more complex and OMISEGO (OMG). Founded in 2013, Omise is
intelligent contracts can be complex a payment services company backed capital
applications that have a wide range of potential operating in Thailand, Japan, Singapore and
uses. These contracts can be open source for Indonesia. OmiseGO (OMG) is an intelligent
wide variety of services, which include: voting platform contract and token ERC-20 (the
systems, financial exchanges, crowdfunding standard ethereum code). OMG uses an
platforms, intellectual property and autonomous algorithm test participation (PoS) and has a total
decentralized organizations. of 140,245,398 million supply a circulating
GOLEM. It´s an innovative piece of technology current supply of 102,042,552 million tokens.
that works for the decentralization of computing According to the World Economic Forum
power. Although Golem is still in its infancy, if (2018), the number of people worldwide who
successful, would be a global supercomputer have no access to bank accounts amounting to
distributed and accessible to all. It is currently in more than two (2) billion. This number
development, but aims to redistribute power of represents about 35% of the world population.
computing. Incentivized by financial reward, Omise Go can solve this problem, especially in
taxpayers donate their 'CPU cycles' a golem economically developing countries, and aim to
carrying out delegated by network users tasks. use the blockchain technology to carry it out. At
Computers around the world can benefit the end of 2017, there were nearly 1,400
financially by using downtime to perform outstanding crypto currencies, a combined
calculations for network Golem. market cap of about $ 610 billion. Earlier this
BINANCE COIN (BNB). It is the crypto year, the total market limit was only $ 18
currency exchange platform Chinese Binance. billion, representing a gain of almost 3,300%.In
The token is created during the fundraising trading in crypto currencies 2018 it was a year
event (ICO) to finance the development of the of growth, being the biggest winners were
exchange. Currently, the cryptocurrency has a Ripple, which is touted as a new type of
market capital of US $ 180 to 218 million, of payment system for banks, along with lesser
which between USD 18 and 35 million sold known names like NEM, Ardor and Dash.
daily. BinanceItis one of the newest exchanges
banca tradicional en colombia? Recuperado de [42] Treasury (2015): Digital Currencies: response
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10784/7498/viviana_gomezdelarosa_2015.pdf? TREASURY. UK Government, Chief
Sequence=2 Scientific Adviser (2015). FinTech Futures:The
[36] Schwienbacher, a., & larralde, b. (2010). UK as a World Leader in Financial
Crowdfunding of small entrepreneurial ventures. Technologies.
[37] Oxford,usa: oxford university. [43] World Economic Forum (Oct ober 2015). The
[38] Skinne, C. (2016): How FINTECH firms are Future of FinTech. A Paradigm Shift in
using Mobile and Blochchain Technologies to SmallBusiness Finance. Global Agenda
createthe internet of value. Singapore: Marshall Council on the Future of Finance.
Cavendish International. [44] Velasco, j. (24 de 07 de 2013). Crowdfunding,
[39] Taylor, K.C. (2014). Fin Tech Law: A guide to mecenazgo y colaboración en red. Recuperado
technology law in the financial services dehttp://blogthinkbig.com/plataformas-de-
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Citation: Jairo Toro Diaz, Melissa Duque Vélez, Maria Camila Ortiz Chamosa, “Fintech", Open Journal
of Economics and Commerce, 2(2), 2019, pp.8-20.
Copyright: © 2019 Jairo Toro Diaz. This is an open-access article distributed under the terms of the
Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any
medium, provided the original author and source are credited.