What is fintech? Financial technology explained
Tips / 09.09.2021
The term fintech, or financial technology, refers to innovations and technologies used in the financial services sector. Although it seems simple, it is a collective term covering a huge number of services that continue to change in the new digital era.
This article will introduce you to what is fintech and how it is used in the financial industry.
Table of contents
What is fintech?
Fintech combines the terms “finance” and “technology” and refers to any business that uses technology to improve or automate financial services and processes.
The term encompasses a rapidly growing industry that serves the interests of consumers and businesses in multiple ways. From mobile banking and insurance, to cryptocurrencies and investment instruments, fintech has a seemingly endless array of applications.
One of the driving factors in the industry is that many traditional banks are supporting and embracing the technology by actively investing in, acquiring or partnering with fintech companies. It’s much easier to give digitally minded customers what they want while moving and keeping the industry relevant.
How fintech works in practice?
Initially, fintech was recognised by technologies that were applied to the internal systems structure of banks or other financial institutions, but more recently the term has encompassed a host of other applications that are more consumer-facing.
Through this type of technology, it is possible to manage funds, trade stocks, pay for food or manage insurance. Fintech businesses, such as myPOS, allow you to accept payments through a variety of methods, some of which are: through a POS terminal or entirely online.
The tools provided by fintech are changing the way many consumers keep track of, and are making it easier for them to manage their finances. According to data, in 2017 alone, investments in the financial technology tools field grew by 18%.
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.
Fintech companies use a variety of technologies, including artificial intelligence (AI), big data, blockchain and robotic process automation (RPA).
AI algorithms can provide insights into customer spending habits, allowing financial institutions to develop better strategies. Chatbots are another AI-driven tool that banks are using to help better serve customers.
Big data sets can predict customer investments and market changes in order to create new strategies and plans, analyse customer spending habits, improve fraud detection and create marketing strategies.
Blockchain, for example, is a new technology in finance that has sparked significant investment by many companies. The decentralised nature of blockchain can eliminate the need for a third party to execute transactions.
Examples of fintech
1. Crowdfunding platforms
Crowdfunding platforms allow users to send or receive money from other users of the platform and enable individuals or businesses to pool funding from different sources in the same place.
Instead of going to a traditional bank for a loan, it is now possible to connect directly with investors to support a project or company. And while the applications vary, the number of crowdfunding platforms has increased manifold in recent years.
2. Blockchain and cryptocurrencies
Cryptocurrency exchanges are a perfect example of fintech in action because of the way they function. These platforms offer a secure way to buy, sell and store your funds.
In addition to cryptocurrencies, blockchain services help reduce fraud by storing provenance data on the blockchain. And while cryptocurrencies and blockchain technology may be seen as an atypical use of fintech, they have certainly taken over much of the investment world.
3. Mobile payments
Recently, quite a few consumers with a smartphone have been using various forms of mobile payments.
Using increasingly sophisticated technology, services have emerged that allow users to exchange money and make payments online or on mobile devices – including the popular softPOS payment acceptance app, myPOS Glass.
Fintech in the insurance industry, or insurtech, includes everything from car insurance, to home insurance and data protection. In addition, fintech solutions from insurance startups are increasingly attracting funding.
5. Robotic advice and stock trading
Robo-advising has entered the asset management sector by providing algorithmic portfolio management recommendations that increase efficiency and reduce costs.
Following the advent of more sophisticated technologies that can analyse different portfolio options non-stop, financial institutions are adapting to offer robo-advisory services online.
Perhaps one of the most popular and major innovations in financial technology is the development of stock trading apps. Instead of investors having to go directly to a stock exchange, they can now buy and sell stocks with just a tap on their mobile device.
6. Budgeting apps
One of the most common uses of fintech is budgeting apps for consumers, whose popularity has grown exponentially over the years.
Before, users had to collect checks or navigate Excel spreadsheets to keep track of their finances. But since the fintech revolution sparked the development of financial services apps, consumers can easily and efficiently track their income, expenses and other budgeting tools that have revolutionised the way consumers think about their money.
7. Embedded finance
Embedded finance is used when banking as a service (BaaS) is used to install a monetary API into a site or application. The motivation for this is to coordinate monetary administrations across different environments and ecosystems.
This comprises brands or organizations “renting” access to the apparatuses and administrations that are presented by money providers and utilizing them to build financial products.
The future of the fintech industry
It’s no secret that over the past decade, the fintech industry has evolved tremendously, and the share of fintech investments continues to grow. Financial institutions that fail to go digital will struggle to survive in a highly competitive environment.
Technology, machine learning and artificial intelligence are beginning to dominate the ways in which businesses are expected to operate.
So now that you know what is fintech, consider the opportunity it gives small players to compete in the same playing field as traditional banks and financial institutions.
In this industry, it is not about who is the biggest, but who is the fastest and most responsive in effectively meeting the ever-changing demands of consumers. Furthermore, 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 specific financial need, sometimes at a much lower cost than those offered by traditional financial providers.
As consumers become even more inventive, successful financial businesses will be those that continue to innovate efficiently, in offering new solutions, to dynamically emerging problems.
Disclaimer: Please be aware that the contents of this article and the myPOS Blog, in general, should not be interpreted as legal, monetary, tax, or any other kind of professional advice. You should always seek to consult with a professional before taking action, since the particulars of your situation may materially differ from other cases.