Fintech is a combination of the words “finance” and “technology.”
“The future of financial services is bright.”— Gregory Weber
Technology has always changed the financial industry. However the internet, combined with the widespread use of devices like smartphones and tablets, means the speed of this change has accelerated greatly in recent years.
Fintech is changing the world of finance for consumers in a myriad of ways.
What is Fintech?
FinTech (financial technology) is a catch-all term referring to software, mobile applications, and other technologies created to improve and automate traditional forms of finance for businesses and consumers alike. FinTech can include everything from straightforward mobile payment apps to complex blockchain networks housing encrypted transactions.
The fast and innovative progresses such as Mobile Payments changed the way we manage our finances.
It describes the use of technology to deliver financial services and products to consumers. This could be in the areas of banking, insurance, investing – anything that relates to finance. Although it’s a relatively new word, fintech is actually nothing new.
While the general public typically associates fintech with really cutting-edge new concepts like blockchain and algorithmic trading, the term applies to a very wide variety of much more “boring” applications. They include, but are not limited to, everyday banking, insurance, and other back-office risk management functions.
How does fintech work?
Fintech is not a new industry, it’s just one that has evolved very quickly. Technology has, to some degree, always been part of the financial world, whether it’s the introduction of credit cards in the 1950s or ATMs, electronic trading floors, personal finance apps and high-frequency trading in the decades that followed.
The guts behind financial technology varies from project to project, application to application. Some of the newest advances, however, are utilizing machine learning algorithms, blockchain and data science to do everything from process credit risks to run hedge funds. In fact, there’s now an entire subset of regulatory technology dubbed “regtech” designed to navigate the complex world of compliance and regulatory issues of industries like, you guessed it, fintech.
As fintech has grown, so have concerns regarding cybersecurity in the fintech industry. The massive growth of fintech companies and marketplaces on a global scale has led to increased exposure of vulnerabilities in fintech infrastructure while making it a target for cybercriminal attacks. Luckily, technology continues to evolve to minimize existing fraud risks and mitigate threats that continue to emerge.
Evolution of fintech
Fintech has been around much longer than most people think. While the latest iteration of fintech allows you to pay for a cup of coffee with a mobile app, the history of financial technology can be traced back to the earliest credit cards that were adopted into the general public in the late 1950s.
After the credit card, financial technology evolved and introduced several major milestones to the mass market, such as ATMs, electronic stock exchanges, bank mainframe computers, and online stock exchanges. Each new piece of technology advanced the financial infrastructure that most people used everyday, but rarely had to think about.
Before the 1990s and the era of the internet, traditional financial institutions, such as banks, thrived on fintech. According to the Federal Deposit Insurance Corporation, banks grew from around 13,500 commercial bank branches in 1950 to over 83,000 in 2008. In the late 1990s and early 2000s, online fintech companies, such as PayPal, entered the market but didn’t really threaten the traditional infrastructure until the 2008 global financial crisis. During this time, many people lost their trust in traditional banking while millennials welcomed free and online financial services.
Examples of FinTech
Since we have covered the basics of fintech now it’s time to be precise. Can you name me two or three top fintech companies? Wealthfront, Personal Capital, Kabbage are the ones to top the list at present. All of them have significantly been offering unmatchable fintech services. For better understanding let us go through these common yet important examples of fintech.
There is no denying the fact that Fintech has made some significant changes in the way we buy and sell products – both as businesses as well as individuals. Conducting transactions via smart devices and computing systems was a pure myth at some point in time and today it has become a reality.
They would say by using mobile apps be it Google pay or WhatsApp payment or anything else. The cash-based society seems to be doomed, which is not a problem at all. Because these online transactions have led to several benefits such as corruption has decreased, a few underdeveloped banking sectors have gained momentum, managing finances is no longer rocket science and whatnot.
With consumers looking more towards financial wellness, many financial institutions are adopting or expanding their mobile banking capabilities with the rising demand for digital banking among consumers. Most banks now offer some type of mobile banking capability on their platform.
Trading and investing has improved with the adoption of FinTech. Information from big data is often unstructured and unreadable without the help of AI technologies. Using natural language processing, these technologies can sift through complex datasets and extract insights from data in a matter of seconds. Now, traders can now run large amounts of data through algorithms and identify trends and risks.
The list is definitely incomplete without Cryptocurrency and blockchain. Buying or selling bitcoins have now become a new norm to reduce fraud or faulty transactions and safeguard the data on Blockchain technology. Have you heard about libra? It is Facebook’s digital currency. So you see the concept of cryptocurrency is not slowing down.
Cryptocurrency exchanges have been able to connect users buying or selling cryptocurrencies such as bitcoin. Blockchain solutions have aimed to reduce fraud by keeping provenance data on the blockchain.
The blockchain technology that underpins the various cryptos exists with the principal purpose of decentralizing (the historically very centralized) finance sector – bypassing traditional banks, financial institutions, and payment channels – often called the legacy financial system. Defi is itself a recent term and a by-product of the fintech revolution. It’s a combination of the words “decentralized finance.”
First, what are these crowdfunding platforms? These platforms enable internet or app users to send or receive money from different platforms at the same time. Yes, you are no longer required to beg in front of conventional banks for loans, all you have to do is find investors who are ready to support you and your work is done.
Fintech is not limited to the financial or banking industry, but has had a major impact in the insurance sector as well. Insurtech is the name that counts constantly. And why not as this has not left the stone unturned in maximizing savings.
Fintech companies are starting to partner with traditional insurance companies to automate processes and enable the insurance companies to expand coverage.
6.Consumer Banking Technology (BankTech)
This class of Fintech uses digitized platforms to offer banking solutions and finance products similar to those available at traditional banking institutions — and solutions that brick and mortar banks can’t offer made viable through digital technology.
Properly implemented, BankTech provides a better customer experience, less friction in operations, and reduced costs, when compared to traditional banking.
7.Lending Technology (LendTech)
The focus of lending technology or LendTech is on using technology to offer consumers lending solutions through more accurate and streamlined processes. Smart LendTech systems can use Artificial Intelligence (AI) and Machine Learning (ML) algorithms to process and verify identity credentials and ensure error-free results.
Predictive analytics algorithms can forecast income prospects, assess a borrower’s track record, appraise their collateral value, and make predictions about changes in borrower behavior.
8.Payment Technology (PayTech)
Payment technology or PayTech concerns itself with managing assets and processing various payment transactions securely and efficiently. To this end, the development and integration of digitized processing applications and diverse processing networks are combining with consumer-level technology such as wearables and smart devices, to facilitate better digital connectivity and customer identity protection.
9.Personal Finance Technology (WealthTech)
By focusing on the improvement of wealth management and retail investment services through the use of technology, personal finance technology or WealthTech simplifies the investment process, enabling investors to manage their portfolios in a more efficient and automated manner. WealthTech solutions can enhance existing investment solutions or create new ones.
10.Regulatory Technology (RegTech)
Regulatory technology or RegTech was introduced in 2015 by the Financial Conduct Authority as a subset of Fintech, whose focus is to use innovative technology to aid better regulatory compliance, and the delivery of easy-to-integrate, secure, and cost-effective regulations. Its aim is to standardize and facilitate transparent regulatory processes that automate the entire compliance system.
Besides compliance management, RegTech finds applications in regulatory reporting, risk management, and transaction monitoring.
Why is Fintech (Financial Technology) Important in the Business World ?
Businesses are no longer limited to implementing old-school ways or conventional ones, all thanks to the fintech revolution. Today one is surrounded by a plethora of alternatives and options ranging from crowdsourcing to net banking to mobile payments. More or less, unlike earlier, now anyone can set up his or her own business in no time with the help of fintech.
For those who don’t know what Crowdsourcing is? By using such services anyone can create instant plans on how and most importantly where to get finance from. Here you don’t need to meet others in person. Instead of spending so much time convincing your investors today, businesses can pitch seamlessly.
Transferring money across borders was a curse earlier! Time to get acquainted with TransferWise – the innovation which turned the table entirely. Not just large enterprises but even startups are found moving cash conveniently at cost-effective rates. You won’t find the post convincing till I don’t provide some accurate reasons stating how important the Fintech software is. So without any further ado, here it goes!
Of course, you are well-versed with the fact that global payment services have proven as a pure blessing for a plethora of communities. But what you may not know is that global remittance is a costly venture and not every business has the potential to afford it.
Moreover, each time you transfer the money the processing fees automatically fluctuate. Using Fintech services, businesses could save from charging these unnecessary fees. There are a plethora of tools available. So, one no longer has to worry about any cancellation fees or any other hidden charges, they can send or receive money across the world instantly in different currencies through mobile devices.
Lastly, can anything think of integrating physical and digital payments? Well, now this is a reality where multiple bank accounts are using a single interface. And you know what is the best part? This fintech software is beneficial for consumers as well.
2.Compliance + Security = Fintech
Many of you might not agree that Fintech is highly safe in regards to security. Fintech is much safer and secure than traditional banking.
According to several sources, traditional banks have lagged way behind in regards to security. Unfortunate but that’s true! Now since Fintech’s fundamentals include the effective use of tech, compliance and security won’t be such a problem.
3.Upgraded Payment Systems
After security comes to the upgraded payment systems. We are living in a dog-eat-dog world, if you want to raise a cut above using fintech software turns out to be a must-do thing. As a result, nothing can stop your business from being effective. Which is possible only by using upgraded payment systems. Also, this leads to enhanced business-client relations.
4.Speed and Convenience is Best for Companies as well as Customers
Since we mentioned this earlier, offering instant results and taking care of your customers has become a priority for every industry and fintech is no exception. Now it has become possible to offer payments or lend money right away digitally in no time. For example, let us assume that you want short-term loans or some money just for a day. We know you will come across a wide range of potential businesses who would like to offer. These are the ones making the most of the tech and maintaining the economy.
5.Say it Like You Mean It – Transparency
With the rise of Fintech in the traditional banking and financial industry, the term transparency is no longer just said. In fact, it is being meant and implemented upon by the vendors. Several new benchmarks have been set by vendors all across the globe. A win-win situation for the banking industry as well as their valued customers.
You do get all the other perks such as 24/7 dedicated customer support, real-time updates and tight security measures and whatnot!
How Fintech Is Beneficial For Economic Growth!
Till now, you must have realized the fact that how fintech innovation can make everything around so easy and effective. On that note, a recent IMF report entitled The Promise of Fintech: Financial Inclusion in the postCovid era reveals that those countries often have high annual GDP growth which beliefs in investing higher levels of digital financial inclusion.
1.How Fintech Contributes to The Ever-Changing Economic Growth?
To begin with, it reduces overall transaction costs. Another benefit is increased GDP and job opportunities. Further, Let’s take a look at the Top three countries having a good number of fintech startups.
- The USA – A considerable rise has been observed among companies offering digital currencies services here.
- The UK – Many fintech investments have been made in the UK especially after the COVID massive hit and it is showing no signs of slowing down.
- Singapore – The Singapore government has already invested a significant amount in the ongoing as well as upcoming fintech projects.
Lastly, Innovations in digital banking, fintech lending, and equity or debt crowdfunding platforms have been a pure bliss for banking and financial institutions as well as their customers.
2.What Scope of Activities Does This Fintech Cover?
- Loans – There is a massive difference between the operating methods of banks now and then. You will be able to spot several Lending-based markets.
- Payments – With the rise of the internet, mobile payment now can be easily done. . In fact, online payments whether it’s to shop or buy food or book tickets cannot be underestimated. Transfer of money is now possible with fewer conversion fees and no fraud. Managing the Funds – With the emergence of this technology, it seems that we humans have changed to a great extent in regards to our habits especially how we save money, invest or manage them.
The Importance of the FinTech Industry
The growth of FinTech is due in large part to the opportunity it affords small players to compete on the same field as traditional banks and financial institutions. Thanks to FinTech, it’s no longer about who is biggest, but who is fastest and most responsive at effectively addressing the ever-changing consumer demands. Additionally, the solutions offered by FinTech companies are no longer “one size fits all.” Instead, they offer targeted – often niche – services that fill the gap of a particular financial need, sometimes at much lower costs than those offered by traditional financial providers.
As consumers become even savvier and more connected, the FinTech companies that succeed will be the ones that continue to successfully innovate in bringing new solutions to old problems.
How are FinTech’s Impacting Traditional Financial Services Firms?
Traditional financial services providers (mainly banks and credit unions) serve three core functions:
- They hold money – including deposits and a variety of investment products.
- They lend money – including both secured loans and unsecured loans
- They move money – pagesa ditore për transfertat ndërkombëtare të parave duke përdorur rrjetet globale like SWIFT (Society for Worldwide Interbank Financial Telecommunication ).
Future of Fintech
Global economic growth, a growing need for loans, financial services, and insurance, and an increasing interest in investments are some of the factors suggesting that the future of Fintech will be a profitable one. With Fintech developments touching on almost every aspect of life and business, the potential for wealth generation is virtually limitless. Financial technology continues to disrupt the way that services are consumed and delivered — but Fintech itself is also being affected by external factors that may help to shape its future.
The sharing economy embodied in business models expand to include the financial services sector. Decentralized asset ownership and the harnessing of digital technology will make it easier to find suitable matches between providers and users of capital, rather than having to turn to a bank as an intermediary. At the same time, the commercialization of blockchain technology could make it available as a public ledger that will go on to become an integral part of the technological and operational infrastructure of financial institutions.
With advances in data management and analytics, customer intelligence will become a key factor in determining the revenue growth and profitability of Fintech operators. Increasing access to data and the drawing of actionable insights from that information will be a differentiator of each platform’s ability to give customers what they actually want.
Benefits & Risk
- Speed and convenience – Fintech products tend to be delivered online and so are easier and quicker for consumers to access.
- Greater choice – Consumers benefit from a greater choice of products and services because they can be bought remotely, regardless of location.
- Cheaper deals – Fintech companies may not need to invest money in a physical infrastructure like a branch network so may be able to offer cheaper deals to consumers.
- More personalised products – Technology allows fintech companies to collect and store more information on customers so they may be able to offer consumers more personalised products or services.
- Unclear rights – Fintech companies may be new to the financial industry and use different business models to traditional providers. This can make it harder to ascertain which ones are regulated, and what your rights are if something goes wrong.
- Making a rash decision – Financial products that are bought instantly online without ever meeting anyone face-to-face may make it easier for consumers to make quick, uninformed decisions.
- Technology-based risks – Financial products bought online may leave you more exposed to technology-based risks. For example, your personal data could be mis-used or you could fall victim to cybercrime.
- Financial exclusion – While technology increases choice and access for most consumers, it can exclude those who don’t know how to use the internet or devices like computers, smartphones and tablets.
Brace yourself up as the fintech industry is going to get bigger and better. Let’s keep our fingers crossed and keep watching the space to know more about what exciting lies ahead in the Fintech space.