The Expansion Of The Financial Technology Sector
The FinTech sector has seen many promising gains recently, with more and more players eager to get in on the massive potential in the sector.
FinTech is growing, but one of the major stumbling blocks for the global FinTech future is standardizing regulations across countries. Fintech will simply never achieve mass uptake from users if a person can’t trust a startup in the same way they can trust a brick and mortar banking institution, and if payments can’t cross borders in a seamless and error-free way.
Despite this challenge, the demand for global FinTech solutions is no doubt strong. As Inc. recently put it, “long seen as a highly technical, highly regulated industry dominated by giant banks that resist disruption–other than the occasional global meltdown–finance is now riding an entrepreneurial wave,” where demand for innovation is high, as is frustration with big banks. And there’s a hefty profit to be made, too: Goldman Sachs estimates that startups have the potential to divert $4.7 trillion in annual revenue, and $470 billion in profit from the established financial sector.
FinTech And Small Business
As the barriers are so high for global expansion, very few FinTech startups have successfully managed to expand globally. There are a range of factors that make this difficult, including market opportunity, suitability of business models, local legislators and regulations, fierce competitors, success in the country of origin, a strong professional network abroad willing to evangelize on a company’s behalf, and a misunderstanding of the local ecosystem where a company plans to expand.
The biggest of these hurdles is almost certainly regulations. As these vary so widely country to country, and simply can’t be ignored, many in the FinTech space have found the only way to expand into another country is to partner with a company that’s already operating there and thus already understands the landscape.
For the FinTech startup that wants to expand on its own, the challenge is twofold: government regulations often aren’t up with the pace of technological change, and secondly the banks themselves—who see FinTech companies as major competitors—often do what they can to thwart any innovation in this sector.
The Solution
However, there have been some promising improvements recently. In the EU, the Directive on Payment Services (PSD) is set to be revised, and will provide a legal foundation for a single market across the EU. As the European Commission’s website states, “The PSD aims at establishing a modern and comprehensive set of rules applicable to all payment services in the European Union. The target is to make cross-border payments as easy, efficient and secure as ’national’ payments within a Member State. The PSD also seeks to improve competition by opening up payment markets to new entrants, thus fostering greater efficiency and cost-reduction. At the same time the Directive provides the necessary legal platform for the Single Euro Payments Area (SEPA).”
This could be a huge gain for European market, and help lots of players expand with more ease, but startups aren’t necessarily waiting around or relying on this to happen. One example is the Israel-based payment platform startup Zooz, which TechCrunch recently reported had gained a $24 million investment led by Target Global Ventures to expand globally. Zooz is a product that helps merchants reduce the number of international cards it has to reject, targeting developers for both mobile and desktop.
Ronen Morecki, co-founder and CTO of Zooz, was quoted in TechCrunch as saying: “We know to route to the right payment processor, increasing the chances of the card being accepted. We are opening sales and tech support offices in Berlin and San Francisco [and we are] going to invest more in business intelligence that relate to payments and better optimization of data.”