TOKYO -- A new generation of financial technology startups -- "fintech" companies for short -- is spreading across the globe, promising to revolutionize the once-staid business of channeling money to and from people and businesses.
These industry disrupters, armed with sophisticated software that offers alternatives to traditional banking services, are attracting huge amounts of investment. The upstarts, assuming they can overcome people's natural conservatism when it comes to trusting others with their money, may someday become the main source of financing for households and businesses.
China is a hotbed for fintech companies. Even amid a meltdown in Shanghai stocks this summer, Dalian Wanda Group, a Chinese real estate conglomerate, raised about $1.6 billion during the three months through August, from crowdfunding by individual and other investors.
Wanda's crowdfunding scheme, which offered an annual yield of over 10% for a minimum investment of 1,000 yuan ($157), payable via smartphone, proved enormously popular, pulling in 5 billion yuan in just three days in June. The money raised will be used to build commercial properties.
"With so many people looking for good investments, crowdfunding is such a convenient way of raising funds that I don't see any reason for not using it," said Wanda Chairman Wang Jianlin. The crowdfunding system charges no fees; applications are processed by a settlement subsidiary.
Wanda offers good example of how fintech can make obtaining finance quicker and cheaper. Fintech platforms attract tremendous amounts of money in China, where more than 600 million people are online and 90% of the population has smartphones.
In the U.S. and Europe, where the new wave of financial startups began transforming the sector earlier, social lending is all the rage. Also known as peer-to-peer lending, social lending refers to people who lend and borrow directly from one another online. Fintech companies that bring these people together are a new type of financial intermediary that does away with banks entirely.
LendingClub, the largest U.S. peer-to-peer lender, made a splashy debut on the New York Stock Exchange last year, raising nearly $870 million in its initial public offering.
The total amount of peer-to-peer lending will grow to between 100 trillion yen and 300 trillion yen ($818 billion to $2.46 trillion) over the next 10 years, according to one estimate.
These trends are catching on in Japan as well. One office worker in Kanagawa Prefecture, southwest of Tokyo, is investing in a social lending program that provides money to poor people in Peru. The program is run by Crowdcredit, a Tokyo-based peer-to-peer lender. The company lends the money it raises from investors to consumer finance providers in Peru.
Crowdcredit will expand the number of countries where it invests to eight by the end of the year. In March, Japanese trading house Itochu bought a nearly 18% stake in the startup.
"We play the role of bringing surplus funds in Japan to emerging countries," said Crowdcredit President Tomoyuki Sugiyama.
In 2014, fintech companies worldwide attracted 1.4 trillion yen of investment, triple the amount they raised the previous year. SoftBank Group, best known for its mobile communications business, announced on Oct. 1 a plan to invest in a U.S. fintech startup.
Fintech platforms, like all new types of business, are not without risks for investors, as shown by the failure of Mt. Gox, a Japan-based repository for bitcoin. The company collapsed in February 2014 and much of the virtual currency it was keeping for its customers disappeared without a trace.
In a report released earlier this year, U.S. investment bank Goldman Sachs warned about "the rise of the new shadow bank." Regulators around the world are monitoring the new breed of high-tech financial services, trying to get a handle on their implications for the global industry.