We have seen unprecedented developments in financial technology, otherwise known as “fintech” during the last few years. While there is no universal definition of what Fintech is, it is generally understood to mean companies using technology in developing innovative solutions to enhance their products, processes, business models, and applications within the financial sector.
Some of the developments in financial technology include mobile payments, digital currencies, peer-to-peer lending, blockchain and distributed ledger, and marketplace lending. Most fintech companies have boomed outside the traditional banking and financial systems and are driven by non-bank entities, startups, and non-traditional providers like Apple and Oracle.
How Does Fintech Work?
A Fintech company integrates technologies like blockchain, data science, and AI into traditional financial sectors to make them safer, faster, and more efficient. As discussed previously, it is a fast-growing sector with companies applying innovations in every area, from payments and loans to stock trading and credit scoring.
Fintech is not new to the industry. It just happens to evolve quickly. Technology is always a part of the financial world, from the introduction of credit cards in the 1950s to the ATMs and trading floors.
What drives financial technology into the forefront varies from application to application and project to project. However, the newest advances are noticeable because it uses machine learning algorithms, data science, and blockchain to do everything. It can even process credit risks and hedge funds.
Examples of Fintech and Its Uses
Here is a quick look at how Fintech is enhancing and disrupting several areas in finance.
Mobile banking is a major part of the fintech industry. In personal finances, consumers want easy access to their accounts through their mobile devices. The majority of banks have mobile banking features but the most notable are Neobanks. These are banks without any branch locations and serve customers with different financial products in mobile or digital infrastructure.
Blockchain and Cryptocurrency
The birth of blockchain and cryptocurrency is what we associate most with the industry. Blockchain is the technology that facilitates the “mining” of cryptocurrencies and the markets to exist. The advancement in cryptocurrency can be attributed mainly to fintech and blockchain. Although many consider blockchain and cryptocurrency to be outside of fintech, these two are what move the creation of a practical application in fintech says Jonathan Merry from Bankless Times
Savings and Investments
Fintech has ushered in the creation of many investing and savings apps. Many companies have broken down the barriers to investing making it more accessible to the people. These apps revolutionized the industry because it uses combined savings and small-dollar investing techniques to introduce consumers to the investing realm.
Machine Learning and Trading
In Finance, the ability to predict trends and where the market is like hitting the jackpot. It is no wonder why machine learning is a critical part of fintech. The power of AI is its ability to run massive data using algorithms to spot risks and trends. It allows consumers, banks, and interested organizations to have an informed understanding of buying and the risks ahead.
Payments & eCommerce
Fintech excels at moving money around. Because of fintech payment companies have changed the way we do business. Now, it is easier to send money anywhere in the world. There are many popular payment companies like Stripe, which are the prime movers in the industry – thinks Jessica Wright from dreamteamfundraising.com
According to Mitch Harad from OverDraft Apps – Aside from payments, fintech has changed the lending sector. It streamlined risk assessment, which speeds up the process and makes access easier. This is why billions of people worldwide can now avail loans through their mobile devices. It has expanded credit to underserved populations says
This sector was the last to adopt the technology, but eventually, they did catch up. Many fintech startups are partnering with insurance companies to automate the process and expand their coverage. Ever heard of mobile car insurance and wearables for health insurance? Yes, the industry is adopting tons of innovations.
Changing Customers’ Experience and Beyond
Fintech has broken down the barriers that have long surrounded traditional banking and financial institutions. As a result, it has caused a radical shift in the industry by challenging the conventional business models, value chain, and market positioning.
It simultaneously changed customers’ experience and expectations since it promoted a more interactive and client-centric approach to banking and financial services. Fintech offers new opportunities to understand clients’ needs that allow companies to design personalized products and services. It has made the services available to a broader segment of the population too.
According to Katrina Benett from BuySellEmpire – These innovations have somehow ‘forced’ banks and other financial institutions to adopt new technologies and introduce similar capabilities to their clients. They have taken the steps to invest more in client services and customer engagement using digital channels. They set a budget for digital change and develop their digital team. Many are even launching programs that provide platforms for fintech incubators.
On the other hand, the rise of fintech innovation has kept financial regulators on their toes as the developments in fintech can also create several complexities and risks. Included among these risks are privacy, data treatment, personal information, customer protection, cyber-security, and transparency.
This is the reason why oversight of fintech is tightening. They want an environment where fintech can thrive while at the same time, protecting consumers, markets, and investors. As the fintech industry matures, the regulatory bodies will have to evolve, and new regulations should be made to better address the challenges and opportunities these new technologies present.
While some players in the finance industry may be too late to react to the emergence of fintech, they are starting to realize its impact and how they can take advantage of the opportunities it presents.
The effects of fintech are felt widely across the finance industry. Whether they admit it or not. In the future, those who are opposed to its rise will collaborate with fintech players to produce better products and services. When this time comes, it will benefit the whole industry and all the players will be more profitable.