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Created on 15.12.2021

Fintech: the “digital natives” of the financial world

You’ve no doubt heard the term “fintech” before. Fintech companies are considered to be disruptive. Using modern technologies, they challenge traditional banks. But what exactly does the term mean? And what potential do fintech companies have? In part 1 of our three-part series on the topic, we’ll be answering the most important questions about fintechs.

What are fintechs?

Fintech is short for “financial technology”, which itself is derived from a blend of “financial services” and “technology”. Fintechs are companies that provide innovative, technology-based application systems which are in some way linked to finance.

What impact are fintechs having on the financial sector?

With their simple, digital customer solutions, fintech companies are driving the financial sector towards more digitization, automation and digital functions. Examples include mobile payment apps, crowdfunding platforms and robo-advisors.

Fintech companies aren’t just digitizing traditional banking services, but also internal procedures and processes. Thanks to artificial intelligence and machine learning, processes are becoming increasingly automated. Intelligent machines can, for instance, detect and prevent money laundering a lot more efficiently than humans can. Find out more about the applications of artificial intelligence within the financial sector in this article.

Where does Switzerland stand as far as fintechs are concerned?

Switzerland is a major location for fintech companies. In fact, according to the FinTech hub ranking conducted by the Lucerne University of Applied Sciences and Arts, which looks at general conditions for fintech companies, two Swiss cities are world-leading. Zurich takes second place after Singapore, with Geneva in fourth spot.

Experts at ETH Zurich and EPF Lausanne are driving the development of innovative fintech companies. What’s more, Switzerland offers a very conducive environment for fintech companies, including a special FinTech license – a permit with relaxed requirements that’s issued by the Swiss Financial Market Supervisory Authority (finma).

What fintech companies are there in Switzerland?

At the end of 2020, 400 companies were operating within the fintech sector in Switzerland. Swisscom has recorded all Swiss fintech start-ups in the interactive “The link will open in a new window Fintechmap”, and categorized them into four business areas. Four examples from the four business areas.

Bitcoin Suisse (business area: investment management)

Founded in 2013, this company is the oldest Swiss cryptographic service provider. Bitcoin Suisse allows you to trade with cryptocurrencies.

Neon (business area: banking infrastructure)

The digital banking app was launched in 2017. Neon is not a traditional bank, but a fintech that provides an account app that allows customers to conduct financial transactions very easily.

Twint (business area: payment)

This Swiss payment app already has 3.5 million active users. It was developed in collaboration with the major Swiss banks.

Lend (business area: depositing and lending)

This crowdlending platform brings lenders and investors together. Lend actually acts as a marketplace where loans are applied for and processed.

What does fintech offer me as a banking customer?

Fintech companies simplify banking processes and create new digital financial solutions. Their fee structures are generally attractive seeing as their processes have been digitized, and chatbots rather than actual employees respond to customer queries. Thanks to fintech companies, customers can save time opening accounts, or gain access to innovative, affordable online trading platforms.

One example of fintech companies are neobanks. You will find out everything about these purely digital banks in part 2 of the fintech series.

What sorts of risks are associated with fintechs?

For some time now, fintechs have become unavoidable for both customers and banks. Yet a healthy degree of caution is advised. In addition to a number of reputable providers, you also find a few less-than-reputable copycats lurking on the market. Many fintech companies have their head offices abroad. For these companies, data protection and financial coverage are subject to different laws to here in Switzerland. This is something customers using products and services offered by fintech companies should be aware of.

How can investors benefit from the fintech trend?

The fintech industry with its many start-ups is still in its infancy in relative terms. But these start-ups are characterized by innovative business ideas with huge growth potential. However, if you do decide to invest in a single fintech start-up, you should be aware of the risks involved. The business idea may look impressive on paper, but whether it will amount to anything in the real economy remains to be seen. In the worst-case scenario, you could end up losing all the capital you’ve invested. This is why investments in start-ups are also called venture capital. 

For private investors looking to invest in fintechs, ETFs that specifically focus on them are a good option, for instance. Exchange traded funds have become increasingly popular with investors over the past few years. They are transparent, inexpensive, broadly diversified and flexible. Find out more about the characteristics and risks of ETFs.

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