What is Financial Technology? An Introduction to Fintech

What is Fintech? 

Financial technology (better known as Fintech) is a label accustomed to new technologies that enhances and facilitates the use of financial services to businesses or consumers. Simply put, it is a term that describes apps and websites that help us make payments. The fintech industry includes everything from payment processing solutions to mobile banking apps.

The term "Fintech company" is a business venture that utilizes technology to improve the delivery of financial services and processes.

Fintech comprises diverse technologies, centralized by the principal intention of refining the traditional financial services with improved practices and techniques. Through these technologies, it is possible to manage funds, trade stocks, pay for food or manage insurance.

How does Fintech work?

Businesses are no longer limited to implementing old-school ways or conventional ones, all thanks to the fintech revolution.

Fintech has simplified financial transactions making it accessible to virtually everyone. Businesses are no longer restricted to the traditional method of delivering financial services.

The Emergence and Evolution of Fintech 

Fintech being the current sensation doesn’t imply that it has just newly arrived. Fintech can be traced back to the emergence of credit cards in 1950. Like any other Fintech startup, the credit card shared similar characteristics; to challenge the conventional financial routine. The credit card ruled out the need to always convey physical cash in their daily activities. Technology advanced quickly through the 90s to include other inventories like PayPal, one of the largest Fintech firms to operate. Fintech never stopped there, it initiated the launch of other technologies like the mobile payment apps we all use today.

Recently, Fintech has transformed big-time into becoming a dominant exigency in the financial industry. Constantly challenging the traditional financial framework, as more services transition with the continual unveiling of new technological procedures, like the replacement of the physical wallet with the mobile wallet, through online payment apps. Today, many banks have now kicked off Fintech projects of their own to join the wave, or alternately form alliances with Fintech companies as another option.

Key Areas of Impact 

In 2020 we’ve only really just started to make managing money and making payments easier. In the face of Covid-19, Fintech has demonstrated, without doubt, its infinite influence and value in the financial world. During quarantine, banks and credit unions were able to make transactions and offer Covid-19 support services digitally. It’s progress and success amid the pandemic crisis makes it clear that fintech's influence won't stop anytime soon. Some other areas Fintech has impacted include: 

Digital banking: Fintech has made it possible for people to ‘bank’ from the comfort of their homes or offices without stepping into a bank. Fintech has introduced the use of mobile banking and banks have followed heed with this development. Today, most banks have a mobile application that allows users access to stellar financial services, without stepping into a bank. Consumers can now open accounts, pay bills, check deposits and account balance, and many more, with just their mobile devices.

Payments: Making payments online has been easier and more accessible following the introduction of the e-wallets. Individuals and businesses are using Fintech to make transactions from the comfort of their homes. Following the wave of Fintech, traditional banks are rapidly embracing the technological advancements of Fintech, especially e-payments.

Lending: Fintech has enabled a platform to facilitate the easy and quick application and investment of loans. Unlike the traditional banks, Fintech has created a rather different and easier access to loans. Borrowers can directly connect with their private lenders through Fintech platforms to get funding, at a cheap cost too.

Wealth management: Fintech has revolutionized the way we manage our money and investment. Financial technology has made it possible for Apps like Betterment and Ellevest to provide a platform that adopts technology to make the right financial decisions, at a very low cost.

Application and Examples of Fintech 

1. Insurtech: Insurtech is a combination of the words “insurance” and “technology.” It describes the term given to companies utilizing technology transformations to improve the efficiency of the insurance industry. Insurtech introduced newer methods of technology in the insurance distribution and promoted new products that refined the traditional process.

Examples include; Etherisc, Avinew, Bdeo, Lemonade

2. Cryptocurrency:  This employs a technology to facilitate the buying and selling of cryptocurrency online. 

Examples includes; Bitcoins, Ethereum, Tether, Litecoin

3. Roboadvisors: Roboadvisors are digital platforms that adopt technology to automate investment, often at a low cost.

Examples include; SoFi, Betterment, Ellevest, Acorns

4. Regtech: This describes companies that utilizes technological innovations to enhance the way businesses manage regulatory compliance.

Examples include; Cappitech, Forter, Hummingbird, Elliptic.

5. Mobile Payments: This uses technology to make individual or business payment transactions online in an instant.

Examples include; PayPal, Zelle, Cashapp, Venmo

6. Crowdfunding: This platform enables individuals or businesses to pool funding from different sources by connecting them directly with potential investors.

Examples include; Kickstarter, Indiegogo, GoFundMe, LendingClub.

7. Budgeting: The fintech revolution sparked the development of financial services apps that enables users to track income, expenses, and more, with the use of their mobile devices.

Examples include; Mint, Mvelopes, Goodbudget, Qapital.

8. Digital banking: The innovation of technology has enhanced the accessibility of digital banking. Consumers can now bank from the comfort of their homes with just the use of their mobile devices.

Examples include; Ally, Betterment, Capital One, Chase

9. Trading and Investment: The transformation of Fintech has created platforms to facilitate the buying and selling of stocks, from your mobile device. Fintech provides investors with the opportunity to buy stocks and monitor their portfolio.

Examples include; Invstr, Wealthbase, Robinhood,Charles Schwab 

10. Lending: Fintech platforms have made it easier and cheaper for borrowers to get funding, compared to the traditional banks. Borrowers can easily connect with their private lenders, with just the use of the internet, as opposed to the complex and manual process of loan applications in traditional banks.

Examples include; Avant, LendIng Club, Prosper, Lendup

Fintech vs. Banks

For institutions set up to provide very similar services, Fintech and Banks do have diverse structures and roles. Fintech focuses on making customer’s financial interactions as seamless and convenient as could be. Banks on the other hand focus on accepting deposits and  granting of loans and advances.

Fintech companies are seen as the major competitors to the financial bank. This is because of the diverse services Fintech has transformed to produce, in a simple and easier way. For consumers who do not have bank accounts, fintech provides a flexible option to participate in financial services without the need to use a bank office. And to a large extent, this type of technology has been developed with exactly this goal in mind – to give consumers direct access to their financial world through easy-to-use tools.

Before fintech was developed, businesses would go to banks to obtain loans and financing. But with the advent of fintech, businesses can easily get loans, and other financial services through mobile technology. Although Fintech is said to be rapidly replacing traditional banks, it is very evident that one cannot substitute the other, since they both play different roles to customers.

What does Fintech hold for the future?

Fintech is predicted to become more important as the world becomes more immersed in technology digitalization.

Businesses and individuals are embracing the perks of financial technology like digital banking solutions, mobile payments and wealth management tools, which are contributors to improving their financial affairs.

Want to Learn More about Fintech?

Now that you have a concise knowledge of what FinTech entails, it doesn’t all end there. You should also have a good overview of the advantages and disadvantages of financial technology. 

For more information on the advantages and disadvantages of Fintech, read this article titled “Benefits and Drawbacks of Fintech, With Suggested Solutions.”

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