The New Definition of FinTech

The New Definition of FinTech


The most common question we get asked at ValueStream Labs is: “What is FinTech?” 


The answer seems obvious at first: technology that relates to conducting financial services activities, with the end client/user being a financial institution. But after many, many meetings, I’ve realized that the currently held definition of FinTech is not only stale, but also unrepresentative of the opportunity in this industry.

For a long time, this definition of FinTech has meant serving the back and middle office of these institutions and trying to make their transactions faster and cheaper, while the front office remained relatively human-driven and relationship oriented. FinTech has traditionally involved very classic enterprise technology businesses such as processing, data management, record administration, security…anything to squeeze an extra cent of profit.

As a result of this long-held definition, many individuals have viewed the FinTech industry as “niche”, with a small client base that is notoriously difficult to sell in to. According to Celent, the total 2012 spend by financial institutions on Information Technology was $54.7BN. A total market size of $54.7BN may just not be big enough for investors to scour the landscape and put up with the industry complexity and regulatory headache—making it difficult to find sophisticated venture capital investors that focus on the space.

It is time for a new definition of FinTech: technology that serves the clients of financial institutions, covering not only the back and middle offices but also the coveted front office that for so long has been human-driven. Now, the client base is larger than just 25 Investment Banks and 100 Commercial Banks—it’s thousands of Hedge Funds, thousands of Asset Managers, tens of thousands of advisors and brokers, hundreds of thousands of corporates and SMEs, and millions of consumers.  And that’s just in the US.

The Pie Chart below shows the breakdown of US GDP by industry sector for 2012. Notice the size of Financial Services slice: $1.24 Trillion, and it’s closely related cousin Real Estate:  $1.93 Trillion. That’s the new market size for FinTech—and it’s one that is definitely worth the effort.


Reprinted by permission.

About the author: Karl Antle

Karl is a Managing Partner at ValueStream Labs. He has significant experience advising and launching innovative financial services companies and projects across the US, Europe, the Middle East, and East Asia, most recently as a senior member of Oliver Wyman’s Financial Services and Private Equity groups.

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