What is a Fintech?

A fusion of the terms "finance" and "technology", the term Fintech first appeared in the Anglo-Saxon press in the 1980s. With the development of new technologies, the term was transformed to designate new financial technologies designed to improve financial services. Today, fintech is an opportunity for many people to become entrepreneurs and innovate using digital technologies. Here's an insight into fintech and its contours.

Fintech: digital technology at the service of finance

The term Fintech ("Finance Technology") is not new, and every year attracts many people looking for something new in their professional lives. First and foremost, a Fintech is a company - usually a start-up - that bases its business on innovation. It chooses to develop an innovative digital technology to improve a financial service. The aim may be to offer a more efficient financial service, or to optimize it to reduce costs. Some large groups specializing in financial services innovation call themselves Fintechs. Occasionally, young companies achieve great success and go beyond the startup sphere. These are known as "Fintech scale-ups".

What are the different types of fintech?

There are several different types of fintechs, or financial technologies, depending on the services they offer and the sectors they serve:

• Payment fintech ("Paytech"), which offers innovative payment solutions such as mobile payments, e-wallets and online money transfers. Examples include PayPal, Lydia and Leetchi,
• The loan and credit fintech for individuals and professionals. Processes are generally simplified and approval times faster than usual. A well-known example is SoFi,
• Fintech specialized in wealth management, offering asset management and investment advisory services via a digital platform. Robo-advisor Wealthfront is a good example,
• Insurance Fintech ("Insurtech"), which harnesses new technologies to offer personalized, affordable insurance solutions. Lemonade and Testamento are prime examples,
• Fintech specializes in crowdfunding and online fundraising for the creation of projects or businesses. Platforms such as GoFundMe and KissKissBankBank are well known in this sector.
• Fintech for online trading in financial products (stocks, bonds, cryptocurrencies). These include Coinbase and eToro,
• Personal Financial Management (PFM) Fintech, useful for all those who want to manage their day-to-day finances more effectively and set budgets. Mint and Linxo are good examples,
• Regtech, a fintech offering regulatory compliance solutions for financial institutions. Scaled Risk, Neuroprofiler, Fortia and ComplyAdvantage are well-known examples.

What services do fintechs offer?

Fintech offers innovative financial services, usually at competitive prices. Fintech encompasses a wide range of financial services, including neobanks (mobile banks) offering a simplified online experience, cash management software and payroll services. Other offerings include customer relationship management solutions and employee savings programs. 

Fintechs can also offer international payment collection solutions, insurance, specific risk management technologies (such as cybersecurity) and money transfer and budget management solutions.

Who are the French Fintech unicorns?

French Fintech unicorns are companies currently worth over a billion dollars. These companies are France's Fintech flagships, brilliantly combining high-quality financial services with technological innovation. 

Among the best-known French unicorns are :

• Qonto, a company founded in 2016 specializing in banking management for freelancers and businesses. Qonto became a unicorn in January 2022,
• Lydia, reputed to be one of the best mobile payment apps. Founded in 2013, Lydia became a unicorn in December 2021,
• PayFit, the leading payroll and human resources management platform for SMEs (small and medium-sized enterprises),
• Ledger, world leader in cryptocurrency security.

Fintech: the main technologies used in the financial sector

Fintechs use a wide range of technologies to make the financial sector an innovative field. Among the main technologies used, some stand out:

• Blockchain technology, which secures and decentralizes financial transactions,
• Cryptocurrencies such as Ethereum and Bitcoin, which are based on Blockchain technology. These alternatives to fiat currencies are gaining a strong following worldwide,
• Artificial intelligence (AI) is no longer in the news, such has been its meteoric rise in recent years. AI can detect fraud, automate complex and tedious tasks, and enhance the customer experience with chatbots,
• Cloud solutions, very useful for fintechs to reduce their IT costs and gain in flexibility. The cloud also makes it easier to integrate complete services via APIs,
• Robotic process automation (RPA) via robot software, ideal for handling time-consuming day-to-day tasks with greater efficiency,
• Mobile applications at the heart of fintech services. Mobile technology enables users to transfer money, manage expenses and make payments while easily accessing their online accounts,
• Cybersecurity technologies, essential today for fintechs who wish above all to protect their users' personal data while preventing cyberattacks,
• Digital regulation (Regtech), which enables fintechs to automate regulatory compliance and facilitate the KYC ("Know Your Customer") process.

How can fintech be financed in France?

In France, fintechs can finance their projects in a variety of ways, at the heart of a competitive ecosystem. For example, fintechs can try to attract investment from venture capital funds in return for a share in the company's capital. Some fintechs opt for equity crowdfunding, i.e. raising funds by selling shares to the public via a crowdfunding platform.

In addition, government aid and public subsidies can be invaluable to fintechs. Organizations like Bpifrance offer attractive grants and loans to companies embarking on innovation. The same applies to banks, which sometimes offer opportunities to certain fintechs.

Finally, incubators and gas pedals are interesting solutions for fintechs looking for financing and long-term support for their development.

How can I invest in fintech?

Investing in fintech is not something you can improvise, and requires a thorough understanding of the ecosystem that is being created around it. Depending on your investor profile, your level of risk appetite and your financial objectives, the choice of investment will not be the same.

You could, for example, buy shares in listed fintechs such as PayPal or Adyen, or choose specialized investment funds (or ETFs, "Exchange-Traded Funds").

If you have a more experienced profile and want to invest more money, you can take part in a venture capital fund-raising and invest directly in a fintech start-up. The promise of gains is generally higher, but so are the risks.

Another possibility is to invest in a neobank like N26 or Revolut via a private financing round. Growth opportunities are sometimes very attractive, even though these companies are not yet listed on the stock exchange.

Finally, investing in cryptocurrencies such as Ethereum, Bitcoin or tokens from fintech projects remains a sometimes attractive option, although the return is highly uncertain.

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