TechFin or FinTech

Sometimes you need to look at things….from another point of view.

This is exactly what you need to do when you have to decide between Fintech and TechFin as there is a very thin line which differentiates them from each other. It’s your pick between the innovator v/s the reigning.

While, the Innovator is ‘Taking process to technology’, coined as term FinTech, the Incumbent is ‘Taking technology to process’, coined as term TechFin.

 

Technically speaking, Fintech is a space where financial services are delivered through a better user experience using cutting edge technology.

TechFin on the other hand is where a firm that has been delivering technology solutions, launches a new way to deliver Financial services.

You need to comprehend  both to decide on your pick. The technology and finance are common between the two; the difference lays in the way you apply it.

 

This difference is much higher than just spelling them or writing them in two different ways:

Fin-Tech or Tech-Fin

 

• TechFin

When the banks plan on utilizing technology to improvise or enhance existing financial processes and operations, their focus remains on how to use technology to bring superior efficiency and productivity from existing financial processes and operations.

The same is done with the objective to magnify the existing experience and capabilities in financial services domain. The aspirations of transformation or disrupting the process are eliminated.

The reason behind TechFin companies not looking towards disruption is the fact that their customers demand-

1. Safety
2. Reliability
3. Stability
4. Legacy
5. No risk and minimal change

Therefore, large retail commercial banks seldom make changes in their mobile apps, as a slight change in the app invites customer complaints and inconvenience. For their customer, change implies exposure to risk and any change is interpreted as offensive. Such banks avoid changes to skip the negative publicity from these incidents.

 

 

 

 

TechFin companies, therefore, stick to what Jack Ma coined them as – “Rebuilding system with technology”.

 

 

 

 

Jack Ma during the China Conference organized by the South China Morning Post emphasized and I quote,

“Fintech takes the original financial system and improves its technology, TechFin is to rebuild the system with technology. What we want to do is to solve the problem of a lack of inclusiveness.”

The best example of a TechFin company Ant Financial Services Group, an Alibaba affiliate company, in June 2017, launched “Fortune Accounts”, a new feature on its wealth management app- Ant Fortune.

The platform which allows consumers to buy a huge range of investment products will now allow third-party financial institutions to set up an “Account Page” of their own. By doing so, they will directly reach consumers without the traditional way of competing on online supermarket format, and help customers get financial advice or promote their products. This is a classic case where the process of investing in financial products has been improvised using technology, helping financial institutions receive backend data of users to receive traffic on their company’s stores.

Firms like Amazon (US), Apple (US), Facebook (US), Google (US), Microsoft (US), Samsung (Korea), Baidu and Tencent (China), Vodafone (UK, India and Africa), and Uber (US) all offer various forms of payment, lending and/or other financial services. The entry of these firms signals a shift from financial intermediary (FinTech) to data intermediary (TechFin).

• FinTech 

FinTech, on the other hand, takes the financial process and transforms it utilizing technology to make its mark. Generally, start-ups use FinTech to create Apps, APIs, and analytics, grab diversity, to disrupt and evolve. For example, the existing products or services like – loans, savings, investments, payments or trading are redefined to profitability, speed, and prudence.

They prefer transforming the process using technology, usually eliminating the middleman and intermediaries.

 

 

Taking the example of traditional and P2P lending, traditional lending will allow an investor to deposit funds and earn interest.

A borrower can borrow money from banks, following a cumbersome documentation and approval process, which takes time and at times may face rejections. The approvals are based on pre-historic financial transactions.

 

 

 

 

 

A FinTech P2P platform allows the lender to directly lend money to the borrower and earn interest, while the borrower uses an online platform to receive instant approval and funds.

 

FinTechs take the risk and have been welcomed by millennial and customers who are ready to explore and experience innovation. People who are ‘on the go’ and use the mobile platform embrace transformation.

FinTechs are ready to disrupt existing processes and financial services ecosystems with use of emerging technology. The limitations of FinTechs are different as compared to TechFins.

Unlike TechFins, who have the limitation of huge credit risk, FinTechs face the challenge of regulators. The global economic ecosystem has still not completely accepted the way FinTechs work. There are rules and regulations which they need to adhere to remain operational.

Another most critical hazard which they are greatly exposed to is Safety. The chances of privacy risk and hacking always haunt them.

To summarize the difference between the two, checkpoints are:

• TechFin

1. Process first approach.
2. The incumbent, usually large banks participate.
3. Improvise the existing process
4. Do not take the risk
5. Customers prefer legacy and trust
6. Enhance the proficiency of staff for the betterment of process using technology
7. Huge credit risks

 

• FinTech

1. Technology first is the approach.
2. Start-ups, usually participate
3. Follow transformation in the process
4. Do not hesitate in disrupting the existing process.
5. Youngsters, millennial and professionals appreciate them.
6. Eliminate the middleman for faster and superior experience.
7. Limitations of privacy, safety, and regulators.

 

There is no better way to summarize, the difference between the two, by quoting Jack Ma, the father who coined the term TechFin:

“There are two big opportunities in the future financial industry. One is online banking, where all the financial institutions go online; the other is internet finance, which is purely led by outsiders.”

 

Though a lot of noise has been raised about FinTech and its disruption, one should not underestimate the slow and steady yet significant size in last few years.

The current scenario might give a picture of TechFins as companies providing their data to financial institutions but the days are not far when they might start providing financial services to customers directly.

The differentiating line between FinTech and TechFin, though thin, is highly distinguishable and the change in your perspective will change and enhance your experience.

 

 

 

References:

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• Traditional banking Vs Peer to Peer lending.
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