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Information intensive and time-sensitive in nature, virtually every component of the banking business value chain has benefitted from FinTech. FinTech ecosystems have rapidly evolved to become one of the most critical and complex aspects of the financial services industry.
What is the FinTech ecosystem and why is it so important?
Fintech ecosystems are collections of organizations working together to reach a common goal: the development and adoption of new technologies to improve or disrupt the traditional banking sector. A stable symbiotic FinTech ecosystem is essential to the growth of the FinTech industry: The main elements are:
- FinTech startups (payment, wealth management, lending, crowdfunding, capital market, and insurance FinTech companies)
- Technology developers (big data analytics, cloud computing, cryptocurrency, and social media developers)
- Government (financial regulators and legislature)
- Financial customers (individuals and organizations)
- Traditional financial institutions (traditional banks, insurance companies, stock brokerage
firms, and venture capitalists)
These elements symbiotically contribute to innovation by facilitating collaboration and competition. At the center of the ecosystem are startups: the innovators that have driven major changes in financial services. However, it is the ability of these technologies to communicate across the ecosystem that is really important. They provide an environment where FinTech companies, financial institutions, and regulators can collaborate, improving the quality of products and services offered and allowing for the sharing of knowledge and best practices.
FinTech ecosystems are complex, involving many different perspectives and skills. As business activity continues to shift toward these extended ecosystems, they are a good option for investment.
4 reasons to invest in the FinTech ecosystem
Investment activity in FinTech is increasing as FinTech ecosystems are quickly developing alongside the market’s rapid growth. Here are 4 reasons why investing in the FinTech ecosystem is a good idea:
1. Traditional finance services are changing
Even though many FinTech projects are experimental, FinTech has proved to be safer, more secure, and more cost-effective than traditional finance services. The awareness that innovative FinTech products enable small businesses to expand their services further has not been lost on traditional financial institutions, who are also investing in FinTech in a variety of ways, including:
- Partnering with FinTechs or technology companies
- Outsourcing FinTech services from FinTechs
- Providing venture capital to FinTechs
- Incubating or accelerating FinTech startups
- Acquiring or buying FinTechs
- Developing internal FinTech departments
2. More inclusive banking
FinTech has also taken center stage in the financial inclusion industry. As it shows the potential for improving economic growth and social inclusion, the speed of FinTech adoption in emerging markets has accelerated. Low-cost digital solutions hold the key to a more inclusive finance system: they have the power to reach the 1.7 billion people worldwide who still do not have access to formal financial services. The very nature of FinTech ecosystems allows more democratic involvement in the financial services sector, ultimately driving economic growth.
FinTech also enhances financial capability on a lower level by simplifying how money is managed. This promotes financial literacy, helping more individuals and small companies reduce debt, understand budgeting, and get involved in investment.
3. Investment is changing
Technology is a necessary part of any business strategy but when it comes to FinTech, the very technology that investors are putting capital into is changing the way they invest. The pandemic also contributed to this change, with online solutions reinventing business models by connecting customers and businesses virtually.
This has prompted a move toward alternative investment holdings as investors want to expand their portfolio from just stocks and bonds into alternatives. Alternative assets provide stronger portfolio diversification which reduces volatility and generates higher portfolio returns.
With so many new investment opportunities to choose from, investors are beginning to prioritize sustainability. More and more businesses are committing to ESG (environmental, social, and governance index) as more consumers make their purchasing choices based on their conscience and want to see their financial institution become more sustainable.
This means investors are placing more emphasis on innovative FinTech investment offerings that are centered around sustainably building a new financial services sector.
The diversity of FinTech ecosystems drives innovation. As FinTechs innovate, they continue to change the way those relationships work, how money moves, and who can participate. The ecosystem is always evolving and improving.
Finnovating is the first B2B matching platform to connect you directly with the FinTech ecosystem. The Discovery tool is designed to connect you to the world’s largest FinTech database of startups, corporations, and investors with over 50,000 opportunities for collaboration.