Financial technology companies lend money, exchange it into different currencies, and some even produce it. They have not disrupted the banking market at all. Banks have only wished to take them over.
Among the many negative consequences of the global economic crisis that ravaged the world eight years ago, one of the more significant is the decline in the supply of capital for financing businesses. In an effort to reduce exposure to bad loans and worthless debts, the usual supply of working capital for businesses, especially smaller and micro-enterprises, has decreased both nominally and in real terms. Therefore, entrepreneurs have been forced to turn to alternative sources of financing such as crowdfunding, venture capital funds, and capital markets, which they have sought to cover the huge gaps created by the withdrawal of banks. Markets in developing countries, where banks find it unprofitable to invest in infrastructure and where smaller players capture markets with innovative products, have long been applying financing from alternative sources, and negative economic trends have also forced developed markets to seriously consider alternatives.
EU Reaction
The lack of money poses the most problems for small and medium-sized enterprises (SMEs), as well as the startup scene. For them, alternative sources are a beneficial solution that saves businesses and investments, and they are also crucial for financial stability as they mitigate the impact of potential problems in the banking sector on businesses and their access to financing. In the European market, the crisis has caused tectonic shifts and led to a stratification of interest rate structures into two levels: for loans to the center and the periphery. For example, small businesses in Italy and Spain pay significantly higher interest rates than similar businesses in Germany and the United Kingdom. This development has also affected Croatia, whose credit rating is not exactly stellar, and the consequences of this, as always, are borne by the real sector, which, despite all the problems with administration and lack of capital, must also contend with (overly) high interest rates.
The first reaction of European Union institutions to the crisis was the tightening of banking regulations, which has likely contributed to the worsening of corporate credit issues as banks began to further avoid risk. This opportunity was quickly seized by so-called financial technology (fintech) companies by bringing innovations to the financial industry that are changing the entire scene and slowly but surely tearing pieces of the market pie away from large banks. Today, you have companies that deal with currency exchange at more favorable rates than standard or assess the creditworthiness of citizens, which was previously reserved for banks. ‘Fintech’ is thriving on digital platforms, and the extent of its growth is evidenced by the fact that in 2014, more than $12 billion was invested in such companies. Of course, banks are not sitting idly by; they are trying to adapt to the new situation through collaboration and acquisitions of fintech companies.
