It is always difficult to state with any certainty the direction that venture capital funding will take, as the economic climate and market trends have varied quite a bit over the last few years. Nonetheless, there has been a noticeable increase in the number of financial-technology companies, commonly called "FinTech,” and venture capitalists seem to be quite interested in funding these popular new endeavors. FinTech just may be the future of venture capital, and here are a few reasons why that may be the case:
Between the bank bailouts and the increasingly strict lending standards that resulted from the financial fallout, a lot of people are disillusioned with the traditional banking system, startup founders included. Fortunately, with the advent of FinTech, it is no longer necessary to jump through the many hurdles that banks impose to obtain a fairly basic business loan. And, it actually seems like a lot of the folks that worked as investment bankers, and in other financial analyst positions at the big corporations that nearly imploded, are the very individuals who have decided to break out of the traditional financial realm and spearhead some of these innovative FinTech companies. Thus, it is no wonder that so many businesses are looking elsewhere for funding and that venture capital has obliged in making these alternative possibilities a reality.
Demand on Dual Fronts
Granted, a lot of entrepreneurs have created FinTech companies for the benefit of other entrepreneurs. However, it is not just companies that want the alternative funding and financial services that so many FinTech companies offer. There are plenty of consumer-oriented enterprises cropping up as well. After all, consumer demand for mobile-friendly technology in conjunction with frustrations over the previous meltdown, stringent standards, and seemingly harsh lending terms have made FinTech companies a rather attractive option. There are companies that are not only willing to lend to consumers, but even offering unusual refinancing opportunities for things like student debt, which until recently, had never been done.
Interestingly, the FinTech movement has gained so much momentum that the Office of the Comptroller of the Currency, an independent bureau that is housed within the federal Treasury Department, announced its intention to analyze the sector to determine whether a regulatory framework might be appropriate, and if so, how that sort of framework should be developed and implemented. This is clearly an indication of the growing prevalence of FinTech and its potential to impact the domestic and international economy. Hopefully, this transformative financial approach will not be regulated beyond recognition.
Perhaps one of the most unique aspects of FinTech is its ability to transcend borders. By taking financial services to the world wide web, it may be a bit easier to circumvent some of the regulatory complexities. Of course, this may have both positive and negative implications, depending on which side of the transaction a company falls. Fortunately, because of the worldwide surge in FinTech companies, with markets appearing in major cities across the globe, countries are being forced to collaborate to eliminate certain barriers, ensure efficiency, and provide some level of regulatory protection.
At this juncture, even though FinTech is humming along quite nicely, it actually seems like this may just be the beginning of a novel financial system.