Fintech is the term that describes the group of new financial technologies designed to enhance and automate the use and delivery of financial services. It is changing how we save, borrow, and invest money by making digital financial transactions easier and simpler, without the need for a traditional bank.
Money had long been making this world go round. In recent years, however, it appears fintech is taking over to call the shots. In case you’ve been living under a rock, it’s understandable to ask: What is fintech?
Financial technology is actually all around us. When we buy something, many of us use fintech instead of cash. Many use it to do various financial transactions in ways that are far more convenient than before.
Fintech will continue to transform our society in the years to come. So let’s familiarize ourselves with this highly-disruptive class of financial innovations.
Financial technology applies to any innovation that involves financial transactions, be it personal use or for business. Initiated by the birth of the credit card (the 1950s) and the ATM (1960s), fintech had since been disrupting our world.
There used to be a time when fintech only pertains to the back office operations of banks or stock trading companies. The Internet boom and the rise of mobile computing had propelled fintech to become a continuing global revolution.
Today, fintech has indeed taken an important space in today’s digital world. With an expanding family of robust technological tools for personal and commercial finance, it is poised to further grow in use and impact.
The long string of fintech advancements had kicked off the powerful notion of a cashless society. Almost everyone had been talking about it for quite some time now. But signs indicate that we must still live with cash for a longer time than anticipated.
Fintech will play a crucial role in making a cashless world a reality. Given the rapid pace of how technology is changing the financial world, further fintech developments will likely bring about vast improvements to business and finance.
Before fintech reaches further milestones in the near future, it pays to know now the essentials about this awesome technology. Whether we like it or not, many of us had been using some forms of fintech without the slightest idea what it’s all about. This is why we’ve prepared this definitive introduction for you.
What is fintech? Fintech is defined as innovations that involve the ever-expanding integrations between digital technology and finance. Such integrations commonly seek to enhance and automate the use and delivery of financial services to consumers and businesses.
The term is also used when talking about firms that create and provide such innovative financial products and services.
What is the purpose of fintech? Fintech uses technological tools to help consumers and companies to more efficiently manage their financial transactions. Initially confined to only desktops and laptops, fintech services are now increasingly done using smartphones.
These fintech-empowered tools are changing the way many consumers track, manage and facilitate their finances. Every year, an increasing number of people across the world are using fintech. In the U.S. 64% of millennials and 59% of Gen Xers have at least one full-service banking app on their phone.
Aside from consumers, venture capitalists are contributing significantly to its global growth. For 2018 alone, Fintech firms raised an unprecedented US$39.6 billion.
From mobile payment apps to insurance and investment companies, fintech has disrupted traditional financial and banking industries. At the rate it’s growing, it is becoming a threat to the very existence of conventional, brick-and-mortar financial institutions.
At first, fintech was confined to function as back-end systems of banks. But after a myriad of innovative apps and wide applications, they’ve now gone mainstream. Today, millions of consumers and businesses are using various forms of fintech in their daily financial transactions, usually via a smartphone.
Fintech empowers approximately 2 billion people across the world with no bank accounts. It provides them easily accessible options to make them more financially viable without the help of traditional banks.
Source: Statista (June 2019)Designed by
Fintech is defined as organizations that combine innovative business models and technology to enable, enhance and disrupt financial services. Here are today’s main categories of fintechs, based on their current capabilities to make significant, real-life contributions.
Electronic payment systems had been around even before e-commerce was born. These online payment gateways have revolutionized payment, making it convenient, easy, and highly accessible for all.
The most notable contribution of payment gateways is that they allow people to send money without the need for a bank. By removing the expensive bank fees, payment gateways have given consumers considerable benefits and savings.
Aside from these advantages, fintechs are also upgrading the security aspects of online payment gateways. For instance, fintechs are developing blockchain-based systems to make electronic money transfers more secure and cost-effective, compared to banks.
With 5.11 billion unique mobile users worldwide, it’s not surprising global mobile payment transactions will be worth over $1 trillion in 2019. By 2023, that figure is expected to exceed US$4.3 trillion.
Indeed, the global diffusion of mobile payments is nothing short of being phenomenal.
It’s no wonder fintech firms are constantly improving their products and services to better serve consumers everywhere. Advancements in mobile wallet technology, digital authentication, and NFC are spearheading these developments.
If a cashless society is something that’s still quite impossible to achieve, a physical credit card-less world is fast approaching to happen.
Have you checked out today’s best mobile payment offerings? It’s good to try out some as fintechs tend to roll out new features regularly.
People used to take the time–often in a quiet area in their homes–to calculate their expenses and make appropriate budgets. Monitoring finances commonly involve navigating through spreadsheets and rummaging through paper receipts and checks.
Today–thanks to budgeting apps–monitoring expenses and planning budgets have become easy and more efficient. In fact, one of the most used fintech offerings to date is a mobile budgeting app.
Either for personal and business purposes, budgeting apps allow anyone to easily ad effectively closely monitor their expenses, income, and other finances. These wonderful apps have truly transformed how consumers see and perform their financial activities.
Another fintech category that’s taking the world by storm is consumer banking.
At this day and age, about 1.7 billion adults remain without a bank account or access to a mobile money provider. This is mainly because traditional banks had been operating in ways that marginalize many impoverished people.
Banks’ exorbitant fees, for instance, make it impossible for the average Joe to use their services. Fintech’s alternative consumer banking products and services are designed to address this long-standing issue. By making financial products more accessible and affordable, fintech firms provide a better alternative for consumers.
Innovative fintech banking examples abound. From mobile banks to online digital banks, fintech banks are changing banking as we know it.
In recent years, robo-advising has altered the asset management sector. This innovative fintech service uses smart algorithm technology to provide intuitive asset recommendations.
Robo-advising, in effect, portfolio management has achieved unprecedented efficiency, including lowering its costs. Financial advisers can now analyze numerous portfolio options more efficiently, 24/7, simultaneously. No wonder, an increasing number of robo-advising services continue to emerge.
Another popular and highly innovative fintech contribution is the invention of stock-trading apps.
In the past, investors must physically visit stock exchange establishments to buy and sell stocks. Today, stock trading solutions allow investors to easily trade stocks at the flick of a finger on their smartphones.
With cheaper and low-minimum stock-trading apps in the market, investing had never been easier. Thanks to these fintech innovations, making those stock-trading apps can now be done anywhere, without any budgetary constraints.
Fintech firms have also entered the large insurance market as well, but offering better services than conventional insurers. Most insurtech firms are involved in distributing insurance.
Insurtechs are optimizing the use of innovative insurance apps to make more people insured. Like what it does in other industries, fintechs are making insurance more accessible to the underserved masses.
Firms in this category are typically collaborating with conventional insurers to automate insurance procedures and extend coverage. Insurtechs have a myriad of areas to innovate, from wearables for health insurance to mobile care insurance.
Crucial to insurance innovation is the removal of cumbersome and time-intensive processes. With fintech-provided insurance, anyone can now buy car insurance in just a few hours.
Is blockchain a fintech? Yes. In fact, if there are fintech innovations that truly stand out from the rest, they’re got to be blockchains and cryptocurrencies. This is because these new technologies are offering great potential to significantly improve various industries.
Blockchain uses encryption technology to create cryptocurrencies, a promising new medium of exchange that is more secure and better than cash. In effect, blockchains offer vast possibilities to disrupt and change conventional business models.
In fact, leading organizations from various industries have already achieved significant benefits from blockchains and cryptocurrencies. These include reduced costs, faster transactions, enhanced efficiency, better traceability, improved security, and increased transparency.
A notable emerging blockchain application is that of smart contracts. These are digital, self-executing contracts that can electronically facilitate, verify, and implement agreements. Experts say that these blockchain products are likely to change how future deals will be executed.
Fintech is changing how equity financing is being done as well. These innovative firms are showing the world an alternative, easier way to raise money. This approach enforces how to effectively make financial transactions outside traditional banking.
Some fintechs in this category are working to align investors with deserving startups. Others are applying virtual fundraising to facilitate new business investments.
Crowdfunding networks enable users to receive or send money online or via mobile apps. They enable businesses or individual entrepreneurs to conveniently use one location to pool funding from various sources.
It is now possible for startups to directly reach out to investors for support rather than try to secure loans from a traditional bank. You can also use donor management apps to enable better handling of P2P lending transactions.
Today, 96% of consumers know of at least one alternative financial technology services they can use for making payments or transferring money. This means the entire world is aware of fintech products and services. What are examples of Fintech companies? Here are major examples of fintech firms today:
Fintech firms continue to face costly compliance covering a myriad of financial regulations. As technology is integrated into the entire financial service ecosystem, regulatory concerns for these firms have expanded.
Most of these laws, however, are already outdated, while some are totally inapplicable to fintech. There are even cases where the problems are a function of technology. These emerging issues, basically, reflect the tech industry’s intolerance to continue disrupting finance.
While fintech firms continue to trailblaze the digital finance space, they ironically must deal with antiquated regulatory obstacles. The root cause of the problem is that fintech companies must operate in a market governed by laws created before they even existed.
In the U.S., fintechs are treated as “banks” using laws made for banks that operate during the 1970s. This, alone, perfectly captures the continued collision between the emerging technology culture and the conservative, risk-opposed finance industry.
Aside from these incongruent laws, fintechs must also deal with another challenging reality, which is to operate with the absence of related laws. A perfect example of this is the commercial diffusion of cryptocurrencies.
ICOs or initial coin offerings, used by startups to raise capital, remain unregulated. These ICOs have also become susceptible to frauds and scams.
Due to diverse fintech offerings and the discrepant industries using fintech products, it is challenging to create a single and comprehensive strategy to these legal issues. Governments mostly use existing laws, which typically caused these conflicts.
On the other hand, some are customizing laws to better regulate fintechs. In fact, some governments have created fintech sandboxes to assess the ramifications of financial technology in the various industries they operate in or affect.
With the ongoing antagonistic regulatory regime, fintech is taking a more proactive approach to achieve better, trouble-free diffusion. There’s now the so-called regulatory technology (or regtech) that functions to help IT-based industries like fintech to better comply with regulations.
Aside from compliance, regtechs are also working to reduce a fintech’s financial risk–usually against money laundering–by leveraging AI technology and big data. Regtech tools are also used to provide real-time monitoring of financial transactions to prevent any issues or criminal anomalies.
Regtech firms mainly use cloud computing and SaaS technologies to help companies more efficiently comply with current financial regulations. Within the fintech industry, the demand for regulatory technology is growing so fast that by 2020, regtech is predicted to become a $120 billion industry.
Fintech companies continuously enhance financial services to be more accessible to businesses and consumers. By making financial systems easier to use and more readily available, businesses and consumers will also improve their respective affairs.
There are two main types of fintech users, namely consumer and business users. These two, there are four common, function-specific fintech user categories today. These are:
In the past, fintech’s growth had been slow because of its generally isolated, non-integrated applications. In recent years, however, the pace of fintech development had taken a faster rate.
Central to this accelerated growth is the creation of opportunities for all user groups to interact with each other more seamlessly. Advancements towards the decentralization of access, more accurate analytics, big data, increased information, and mobile banking will be key.
Before fintech’s birth and adoption, an existing and startup business owner would pay a physical bank a visit to personally conduct his or her financial transactions. Most of the banking industry’s initial involvements into fintech centered on B2C applications like payment and lending services.
Before, if a business sought to accept credit card payments, it must have a good relationship with a credit card provider to have all necessary systems installed. Now, with mobile technology advancements, such cumbersome requirements exist no more.
Beyond banks, B2B engagements are increasing further. Driven by continuing digital innovations, businesses can easily access and secure financing and other financial services.
Today’s, fintech B2B services allow companies to leverage their financial transactions to optimize their productivity and overall bottom line.
Today, fintech offers a wide array of business to client (B2C) applications. Smart cash apps like enable anyone with a smartphone to easily transfer money and conveniently manage their finances.
Same with other technological innovations, the most active fintech adopters are the younger generation. Today’s consumer-oriented fintech applications are primarily focused on millennials considering their increasing purchasing power and large segment size.
Of course, Baby Boomers and Gen Xers are not that far behind in terms of market diffusion. In fact, these two demographic groups continue to register high fintech utilization rates. This is because they have first-hand experience of the extensive benefits of fintech over traditional financial instruments.
The entire financial world has already entered a threshold of evolution. Banks and other financial institutions are also undergoing massive changes to keep up with this transformation.
Behind all of these are the collective, powerful disruptions that fintechs bring. From how we pay and budget up to how we invest for our future, shifts will continue to occur. Fintech innovations are causing considerable tremors that will continuously change how we see and use money forever.
And with the changing of the guards–with Millennials growing in further financial capabilities–brick-and-mortar banks could likely be just a thing of the past. And who knows? Cryptocurrencies might just become that ultimate force to remove cash from our lives.
Have you already bought your first cryptocurrency yet? In case you’ve been planning to try trading bitcoins, it’s best to learn more about what bitcoin is before you make your first venture.
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