The fintech revolution is disrupting the financial services industry and challenging long-held industry practices. Traditional banks are under pressure from new technologies that offer services that are cheaper, faster, and more convenient.
But that doesn’t mean the old guard is going away. The new fintech players want a piece of the industry’s lucrative business.
Crowdfunding is one way that new fintech ventures can receive capital to help them grow. The fintech and crowdfunding industries are connected through a variety of social networks and online platforms.
What is the connection between crowdfunding and fintech? Let’s take a look at their similarities and differences.
Crowdfunding is the practice of raising capital from a large group of people who contribute small amounts of money to a project, business, or cause.
The term comes from the idea of a “crowd,” as opposed to a “small group.”
Crowdfunding is different from other forms of fundraising, like selling stock and collecting donations.
Crowdfunding services are websites or apps that help entrepreneurs go public with their ideas. These services help startups raise money from their supporters.
These online platforms simplify the process of finding investors and distributing equity in exchange for the funds.
Crowdfunding websites operate on a reward-based model. Investors get perks in return for their investment in return. These perks can range from free gifts to equity ownership in the company.
These websites connect investors with startups to source financing. Their services facilitate the fundraising process, collecting money from investors, managing investor money, and sharing profit
Types of Crowdfunding
There are four main types of crowdfunding:
- Equity Crowdfunding: This type of crowdfunding allows individuals and businesses to take out loans to start, grow, or finance their business.
- Debt Crowdfunding: This type of crowdfunding is used to borrow money on the basis of a high but not yet paid interest rate.
- Reward Crowdfunding: This type of crowdfunding is used mostly for projects and products that have a direct reward for the supporter, such as a T-shirt, concert ticket, or book.
- Gift Crowdfunding: This type of crowdfunding is used for charity, non-profit, and non-market transactions, such as conservation or environmental projects, art and architecture, or scientific research.
What is Equity crowdfunding?
Equity crowdfunding, also known as equity-for-profit, is where investors buy shares in a company in exchange for an opportunity to earn profits.
Investors are not getting a piece of the company.
The companies use crowdfunding to issue shares to investors in exchange for money, which the investors can use to invest in the business. The investor does not own any portion of the business.
The crowdfunding platform takes a fee for the transaction, which is why equity crowdfunding is an unsecured loan.
What is Loan Crowdfunding?
Loan crowdfunding is when a company loans money to other businesses on a secured basis, without putting up some of its own assets as collateral.
The loaned money has an agreed interest rate and payment terms, and the company has a loan that is secured by assets.
After a set period of time, the borrower has the right to collect the loan.
Loan crowdfunding, also known as debt-financed crowdfunding, is when a business offers loans to investors.
Investors put up money as a loan, along with a small fee for using the campaign’s service.
The company promises to pay back investors with the profits it makes from sales of the products or services it sells on the crowdfunding platform.
Loan crowdfunding is growing quickly. In 2015, there were more than 210,000 campaigns that used loan crowdfunding, and in 2017 that number increased by nearly 50%.
What is Fintech?
Fintech is a catch-all term for the rapidly growing field of technologies that handle financial services.
These include everything from lending money to trading stocks, managing bank accounts, and paying bills.
Now, fintech can include health care financing, insurance, and other types of financial services.
Fintech has become a cultural and business buzzword, but it still stands for financial technology.
Differences between Fintech and Crowdfunding
The term fintech is often used interchangeably with crowdfunding. But there are differences between the two.
Fintech is broader in scope. It includes all financial technology-related technologies, from banking and lending to investing and trading.
Crowdfunding refers to a project or cause that relies on public support, like a film, book, or music album.
Fintech can include a wide variety of financial services, such as investment banking, insurance, peer-to-peer lending, and trading.
Crowdfunding has become a popular way to raise money for a project.
One challenge businesses face is that they don’t always have the money they need to grow.
The fintech industry is changing how people think about traditional banking. New technologies are offering services that are cheaper, faster, and more convenient.
This has created a demand for these services. That’s where crowdfunding comes in.
Crowdfunding is a way for a new business to get the funding it needs to grow.
It’s a new way for investors to fund projects and a new way for companies to access capital.