On vacation days or moments when you don't want to go out of the house to shop or do some of your business deals, how will you accomplish financial matters such as payments or purchases?
Today, financial transactions are very simple and
smooth, you can deposit your money by taking a picture on your smartphone and
uploading it using the mobile application of your bank.
Later you and your friend eat dinner at a
restaurant, then pay the restaurant bill with several taps on your mobile
phone, and when you get home, Uber and pay for the ride.
As with many emerging technology sectors, fintech
can be a vague concept, and if you're still asking yourself, "What is
fintech?" In this article, you will find enough answers to your questions.
What is fintech?
Fintech is a 'fintech' portal. It is an umbrella
term for technology used to augment, simplify, digitize, or disrupt traditional
financial services.
Fintech refers to software, algorithms, and applications
for both desktop and mobile, and in some cases, includes hardware such as piggy
banks connected to the Internet.
Fintech platforms allow normal tasks such as
depositing checks, transferring funds between accounts, paying bills, or
applying for financial assistance.
It also facilitates technically complex concepts,
including peer-to-peer lending and cryptocurrency exchange.
Companies rely on fintech to process payments,
e-commerce transactions, accounting, and, in the recent period, help with government
assistance efforts such as the Payroll Protection Program (PPP).
In the wake of the Covid-19 pandemic, more
companies are turning to fintech to accept contactless payments or embrace
other tech-enabled developments.
What is Fintech Banking?
Banks use fintech for back-end processes, and
consumer-facing solutions, such as the app you use to check your account
balance.
Banks also use fintech to underwrite loans, and
individuals use fintech to access many banking services, including paying for
purchases using a smartphone and receiving investment advice on their home
computers.
Fintech companies
The annual Forbes Fintech 50 report highlights the
most important and largest companies in the industry, with Stripe topping the
2022 list, a ten-year-old payment processor with a valuation of $95 billion.
In second place comes Klarna, a 16-year-old
Swedish company that offers consumers financing for purchases at several major
retailers. It was valued at $46 billion.
Fintech branches out into a number of more subtle
industries:
- richtech (apps like Wealthsimple, an online investment management service for Canadians).
- Investtech (like Acorns, which allows users to round purchases to the nearest dollar and invest the difference in a diversified portfolio).
- insurtech (eg Next Insurance, the number one mobile carrier). It touches almost every industry, geographic market, and business model.
How does Fintech work?
Fintech provides individuals and businesses with
access to traditional financial services in innovative ways that were not
available before.
For example, many traditional banking mobile apps
now provide customers with on-the-go access to banking services, including the
ability to view your balance, transfer money, or deposit a check.
Meanwhile, bot advisors like Betterment are less
expensive and more convenient than personal investment advice from a financial
advisor.
Fintech also automates many of the services
businesses use, such as loan underwriting and property valuation.
Artificial intelligence combined with massive sets
of consumer data helps fintech companies understand their customers and enhance
marketing campaigns, product development, and underwriting.
How has Fintech evolved?
Just because fintech's buzz doesn't mean it's
entirely new, although Merriam-Webster added the phrase to its lexicon in 2018,
the concept goes back decades.
For example, ATMs were once at the forefront of
fintech innovation, and signature verification techniques were first used by
banks in the 1860s.
In recent years, fintech has gone from being
associated with precarious start-ups to becoming an important facet of
established and outdated financial institutions.
Many major banks are now partnering with fintech
companies or launching their own fintech initiatives.
For example, Goldman Sachs used fintech to launch
an online bank called Marcus in 2016, and JP Morgan Chase invested $25 million
in fintech startups in 2019.
And let's not forget that Fintech has proven its
worth in the face of the Covid-19 pandemic, although some of its iterations
have suffered.
And although Capital One cafes were temporarily
closed during the shutdowns, banks and credit unions across the US were able to
handle - and provide Covid-19 support and services - digitally.
How does financial technology affect me?
Fintech helps speed up processes that used to take
days, weeks, or even months.
Fintech also has the potential to improve
financial inclusion. In some parts of the world, where government or
institutional support is lacking, fintech caters to the unbanked.
Part of the reason fintech has been able to
simplify traditionally undesirable processes is because it is based on ones and
zeros rather than human skills and opinions.
While many fintech platforms include elements of
traditional brokers or advisors and algorithms, others help users navigate
financially complex tasks without interacting with a human at all.
Consumers today can bypass traditional bank
branches for things like applying for a loan, ordinary investors no longer need
to meet with financial experts face to face to discuss some details, they can
look at their options online or even seek help from chatbots to make decisions.
The impact of fintech on your life is a personal
need dictated by the number of services you choose to interact with, and you
can go as deep as you like or simply stay on the surface.
Is fintech safe?
Doing business with fintech companies can lead to
unwanted or unexpected threats, especially to unregulated entities such as
cryptocurrency and blockchain technologies.
The notion that fintech companies adhere to higher
ethical standards than big banks proves highly deceptive, and it is wise to
tread carefully with flashy fintech companies and their tempting promises.
As digital data becomes more comprehensive and
integrated into daily life, this also leads to security tasks being carried out
on a large scale, especially after recent hacks, including bitcoin thefts.
So far, there is no consensus on how secure
fintech solutions are across the board, and such assurances are hard to come by
given the scale and scale of fintech penetration.
But consumers are wise to be wary.
Fintech and New Tech
Of all the technologies that have impacted
financial services, the technology that underpins blockchain and makes
cryptocurrencies possible is arguably the most important, but lesser-known
emerging technologies may have the biggest impacts, and the most interesting
things are:
The Internet of things
ATMs that can detect how many clients are in line
are a good example of this, as are sensors that enable contactless
transactions.
Augmented Reality and Virtual Reality
Virtual stock trading is one potential use for
these still nascent technologies.
smart contracts
Contracts that can be executed automatically when
certain conditions are met can improve security, increase efficiency, and lower
transaction costs.
robots
Also known as automated process automation, these
programs to automate repetitive tasks are known to free people from routine
work, enabling them to focus on more valuable activities.
Voice-enabled payments
Smartphones with voice recognition software allow
people to check balances, transfer funds, and complete purchases just by
speaking.
Fintech Regulation
There is no single regulatory body that oversees
fintech, and in fact, some fintech companies are on the fringes of existing
regulatory oversight or outside it, and for the rest, regulation and licensing
are overseen by a mix of local regulators.
Lending, insurance, and payment systems are
generally overseen by states, for example, PayPal must be licensed in each
state and follow local payment transfer regulations, however federal oversight
overlaps with state regulations, as PayPal is also under the jurisdiction of
the Federal Consumer Financial Protection Bureau.
Oversight of fintech companies is a major topic
among financial regulation circles, and this is a rapidly evolving area as
regulators try to keep pace with fintech innovators.
What does fintech hold for the future?
No one knows for sure what fintech innovations are
on the horizon, and this uncertainty has been exacerbated by the chaos caused
by the pandemic.
Fintech companies like their clients have suffered
financial setbacks, with some forced to downsize staff, while others struggle
to secure investor funding.
At the same time, companies and banking clients
are increasingly relying on technology to help facilitate their financial
transactions.
How do you get into financial technology?
Financial companies of all sizes and types are actively recruiting people who can help them apply financial technology to their businesses.
Applicants who demonstrate in-depth knowledge of the financial services industry and understand how fintech can deliver faster, easier, and more innovative products will have a leg up when applying for jobs.
Artificial intelligence, machine learning, blockchain, and data science are the most sought-after skill sets. However, people who are not software engineers can also fill much-needed jobs in areas such as product management, sales, graphic design, and interface design.
Conclusion what is fintech
Fintech is now so pervasive in financial services that consumers, businesses, and all types of financial services firms are increasingly turning to fictional combinations of tools, software, and data to create and deliver new and traditional financial products and services.
Fintech is firmly woven into the fabric of our
financial community, and its influence seems likely to grow more than ever in
the future.