What is FinTech
“FinTech” describes a sector that uses innovative technology solutions to improve, automate and deliver financial services. Financial technology has been around for several decades but these days it not only refers to the technology being used in the financial industry but also to companies like PayPal and Valyuz who focus on providing financial services and products using FinTech.
FinTech has been around a while so why is it in the headlines now?
Following the financial crisis of 2008 banks were more cautious about lending; interest rates plummeted and transferring money remained a slow and expensive process. Despite this there was still no alternative to traditional banking and so banks maintained their monopoly on the financial industry.
With the introduction of new technology and the ever increasing use of Smartphones things began to change. The Internet changed the way we live and the way we make payments, purchases and transfer funds. Today we can hardly imagine a time when the world was not at our finger tips. Those in the financial industry who noticed the change in society and the reliance on connected devices took advantage of this but many incumbents providing traditional financial services were slow to implement digitalization.
Much has changed in the world of banking since the financial crisis. There have been countless innovations and changes in regulations. The Open Banking initiative and PSD2 are just two examples of how new regulations have created an opportunity for new comers to the financial ecosystem. The dissatisfaction customers felt with traditional banks; the advent of Smartphones and our reliance on connected devices; innovative technology and the change in regulations have all contributed to creating the perfect ground for FinTech to grow and be a current hot topic.
The Importance of FinTech
When a market is more competitive it is always better for the customer and for the development of the industry. That is what FinTech has done for finance; it has given it a surge of energy and accelerated banking into the future.
- Payments – One of the areas affected by FinTech are payments where competition has driven transaction fees down; FX commission down and dramatically speeded up the payments process.
- Accounts – Accounts are another area affected by FinTech. With the digitization of bank accounts FinTech companies and challenger banks can now offer clients easy access to international banking services for a fraction of the price. Now even the unbanked or underbanked have access to financial services where as their application for a current account would have previously been rejected by traditional banks.
- Lending – We now have FinTech lending platforms that can now offer better terms than ever before. These alternative financing solutions have lower interest rates, lower fees and often flexible repayment options for both businesses and individuals. Customers who have previously been turned down by banks when seeking loans now have an alternative.
Is FinTech the solution to all Financial Services?
FinTechs still rely heavily on their relationship with traditional banks who often act as a payment platform or transfer intermediator. Using an established bank as an intermediary is often economical and time-saving. Doing away with the legacy of traditional banking infrastructure may take time. It remains to be seen how long FinTech companies and traditional banks will still need each other.
What is Fintech?
Fintech is a term used to describe any technology that delivers financial services via the internet, by means of software applications. Typical fintech products offer services like online banking, payment apps, money transfer apps by means of desktop and mobile access.
Fintech service providers offer automated advice, touchless payments, and other products that bring great benefits to private individuals and businesses, including lower prices and increased access to services. Fintech brings a wide range of services that encompasses many different technologies, but the primary objectives have been to change the way consumers and businesses access their finances and compete with traditional banking services.
What is a Fintech company?
Fintech companies integrate technologies (like AI, blockchain and data science) into traditional financial sectors to make them safer, faster and more efficient. Fintech is one of the fastest-growing tech sectors, with companies innovating in almost every area of finance; from payments and loans to credit scoring and stock trading.
Fintech platforms enable routine tasks like depositing checks, moving money among accounts, paying bills and more to be handled easily, quickly and safely. They can also involve more intricate transactions like peer-to-peer lending or crypto exchanges.
What are examples of Fintech companies?
There are many different types of fintech activities, but some of the most common types are:
Mobile wallets and payment apps are probably the most popular and visible forms of fintech. Services like PayPal, Venmo, Square, Apple Pay and Google Pay allow people to transfer money from account to account, and for payments to be easily made from customers for goods and services.
Crowdfunding platforms, such as Kickstarter and GoFundMe, have overtaken older funding streams by allowing individuals to easily invest their money in businesses and products via mobile apps.
Share trading apps, such as Robinhood and Acorns, have become a popular and innovative example of fintech as investors can trade stocks from anywhere with their mobile device rather than having to deal through either a stockbroker or a commercial bank.
Insurtech companies offer health, car and home insurance. Companies like Oscar Health and Credit Karma are examples of insurtech companies that have entered the market.
Cryptocurrency exchanges, such as Coinbase and Gemini, allow users to buy or sell cryptocurrencies. Blockchain technologies are promoted as having the potential to move into industries outside of finance to reduce fraud. Cryptocurrency and blockchain technologies are however a mode of fintech that lies outside of the traditional banking field and are more specialized.
How do Fintech companies work?
Fintech has revolutionized many different markets, most notably the banking, trading, insurance and risk management industries. Fintech companies utilize emerging technologies, such as big data, artificial intelligence, blockchain and edge computing to make financial services more accessible and more efficient.
Fintech service providers expedite financial procedures that used to take days or weeks, such as receiving a credit score report or sending an international money transfer. Platforms like Upstart and TransferWise accomplish these tasks in a fraction of the time than was normal just a few years ago, in many cases being able to complete transactions within seconds – effectively in real-time.
Recommended for you