An overview of fintech and cryptoassets

What is fintech?

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What is fintech?

The fintech sector has grown rapidly

Published: 19 May 2022

The Swedish fintech sector grew 15-fold between 2008 and 2018

The Swedish Agency for Growth Policy Analysis published a report in 2020 in which they studied the Swedish fintech sector.[21] See Growth Analysis (2020), “Swedish fintech”, Memorandum 2020:20, Swedish Agency for Growth Policy Analysis. They mapped out the number of Swedish fintech firms and the progression of the fintech sector from the beginning of the 2000s to the end of the 2010s.

Between 2000 and 2018, fintech firms totalled around 500 in Sweden, and around 450 of them were active in 2019. The three main categories in which fintech firms have established themselves are credit (credit, lending and savings products), payments (payment, transaction and money transfer services) and infrastructure (technical services sold to other companies to enable financial and fintech operations).[22] Note that the infrastructure category is not the same as financial infrastructure, which the Riksbank defines as infrastructure systems in which payments are made and transactions in financial instruments are processed. Around 230 firms in total are included in these categories.

In the report, the growth rate of the Swedish fintech sector is also described. The Swedish fintech sector grew from representing 0.01 per cent of GDP in 2008 to 0.15 per cent in 2018 – a 15-fold increase in ten years. In comparison, Swedish financial and insurance operations contributed around 3.9 per cent in total to GDP in 2021.[23] C. Holmström (2022), “BNP – detaljerat” [GDP, detailed breakdown], Ekonomifakta. Last updated 26 April 2022. Accessed 3 May 2022.

Particularly rapid growth in lending from fintech and bigtech firms

Fintech and bigtech firms have, in many parts of the world, become increasingly prominent in one specific type of financial service – lending. A reason for this is that they have straightforward and swift digital loan application processes. Lending from fintech and bigtech firms can also be directed in particular at high-risk borrowers as a way of gaining market share within lending.[24] The Rapid Growth of Fintech: Vulnerabilities and Challenges for Financial Stability. Chapter in the Global Financial Stability Report, April 2022, International Monetary Fund. Borrowers who take out loans through fintech firms fail to fulfil their obligations to a greater extent than those who borrow from traditional financial entities.[25] M. Di Maggio and V. Yao (2018), “Fintech Borrowers: Lax-Screening or Cream-Skimming?", 16 August 2018, updated 6 April 2022, The Review of Financial Studies.

When referring to fintech lending, it is often lending over online lending platforms that is meant.[26] For more information, see C. Bertsch and C-J. Rosenvinge (2019), “FinTech credit: online lending platforms in Sweden and beyond”, Economic Review, 2019:2, Sveriges Riksbank. There are lending platforms directed at both private individuals and small and medium-sized enterprises. Often, the loans are unsecured. The lending platforms enable individual borrowers to be matched directly with lenders, known as peer-to-peer (P2P). Traditionally, it is banks or other financial institutions that act as lenders in the financial system. They usually fund their lending through deposits and market funding. Unlike the banks, in many cases the lending platforms do not take any credit risk of their own; their role is rather to mediate contact between lenders and borrowers.

From the beginning, online lending platforms worked such that they divided up a borrower’s loan into several, smaller units. Private investors could then buy these units. Because the unit was relatively small, investors could buy into several different loans and hence diversify their credit risk. This model is commonly known as crowdfunding.

Over time, the platform model has been developed, however, and now also includes institutional investors such as insurance companies and banks. The types of loans on offer have also been broadened to include various kinds of secured loans.

Bigtech firms can also use different types of platform models for lending. Bigtech lending can also take place for example through partnerships between a bigtech firm and a financial institution. The bigtech firms have unique advantages within lending because they can utilise the large volumes of data they have about their customers from other digital services to determine which people make appropriate borrowers. Lending from bigtech firms has grown sharply in the past few years (see Figure 1). Growth in Asia has been particularly high, in countries such as China, Japan and Korea.[27] G. Cornelli et al. (2020), “Fintech and big tech credit: a new database”, BIS Working Papers no 887, 22 September 2020, Bank for International Settlements.

Fintech firms can also offer other types of lending. For example, some fintech firms are organised like traditional banks in their business models and lending. They are often called neobanks and their presence is exclusively online. Another common business model for fintech firms is offering customers short-term “buy now, pay later” consumer loans. These types of loans are found within e-commerce in particular. Two large Swedish entities that are active within this type of lending are Klarna and Qliro. The Swedish market for these types of loans is estimated to reach just over USD 20 billion in 2022.[28] (2022), “Sweden Buy Now Pay Later Market and Investment Opportunities Report 2022: BNPL Payments are Expected to Grow by 33.8 % to Reach $20,207 Million – Forecast to 2028”, 15 February 2022, Businesswire.

Figure 1. Lending from fintech and bigtech firms USD million The figure shows that lending from fintech and bigtech firms has increased over time. The lending from bigtech firms is especially significant.
Note: The diagram shows lending from fintech and bigtech firms, respectively, for each year, totalled for the whole world. Source: G. Cornelli et al. (2020), “Fintech and big tech credit: a new database”, BIS Working Papers no 887, 22 September 2020, Bank for International Settlements.