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Even if you are not familiar with the term fintech, chances are you use and interact with some form of it almost regularly. If you’ve ever paid for your groceries using Apple Pay, opened a bank account over the internet, or sent someone money through a mobile app, then you’re actively using financial technology, aka fintech.
For the average consumer, fintech makes it easier, faster, and more convenient to manage money and govern one’s personal finances. While fintech is not a new concept, and has in fact been around since the late 19th century, it has garnered more attention in the last decade with the rise of things like challenger banks, emerging technology, and global pandemics.
Learn more about fintech, what it entails, how it works, and in what way it affects your everyday life.
Fintech is an abbreviation for “financial technology,” which refers to any technology that’s used for financial services. Fintech is a broad term that encompasses many different applications, all with the objective of serving the interests of both consumers and businesses. From online and mobile banking to cryptocurrency and budgeting apps, fintech aims to make traditional financial services faster, easier, and more secure.
Fintech can be used to describe all sorts of companies, products, and services. Check out some of the most common ways fintech is used today.
Online and Mobile Banking
Gone are the days of having to physically go to a bank in order to conduct your banking needs. With the rise of online-only banks, also known as challenger banks, everything you need is available online via web browsers and mobile apps. More and more people are doing their banking on mobile devices.
Digital or virtual money has become more and more commonplace since the launch of Bitcoin in 2009. Today there is a wide array of cryptocurrencies that have emerged. A major appeal of cryptocurrency is that it’s entirely electronic, no physical banknotes, coins, or central banks are involved, leaving more autonomy for consumers.
Sending and receiving money has never been easier with payment solutions and apps that allow users to send money online instantly to each other. As we move from a cash-based society to an increasingly digital one, peer-to-peer services are starting to replace traditional payment methods, like cash, checks, and cards.
The development of financial apps has helped consumers easily and efficiently keep track of their expenses, budget, and invest. Saving and budgeting apps like Mint, Digit, and Qapital help consumers save money or handle their monthly budget. And stock trading apps, such as Robinhood and Acorns, allow investors to easily buy and trade stocks all from their mobile device.
The launch of crowdfunding platforms, such as Kickstarter and GoFundMe, have given startups, charities, business, and individuals an opportunity to receive monetary support without relying on conventional investors or trying to secure traditional bank loans. This gives smaller companies and individual entrepreneurs easier access to capital.
Fintech has a seemingly endless array of applications. In addition to those referenced above, other examples of fintech include blockchain solutions to reduce fraud, digital lending and credit, insurance technology (insurtech), robo-advisors, and much more.
Benefits of the Fintech Industry
Like other types of technological innovation, fintech creates a plethora of advantages for both consumers and businesses. The following are some of the top benefits of fintech:
- Faster and more convenient access to financial products and services.
- Consumers have more choices in financial products, regardless of location.
- Products and offerings are more personalized due to more digital access to consumer information.
- Unbanked or disadvantaged consumers might have more opportunity to use online financial services than they would through traditional means.
- May be able to offer cheaper deals to consumers.
Future of Fintech
The fintech industry is huge and is expanding every day. Over the last decade alone, global fintech investments have skyrocketed, and more and more people exclusively use digital channels for their financial needs.
Fintech is an ever-evolving industry that continually provides businesses and consumers with innovative ways to improve upon our financial systems. Technology, machine learning, and AI will continue to dominate the ways we manage our finances, conduct business, and interact with money.
Here are some fintech trends to look out for in the coming years:
- Open banking — a growing initiative that enables banks to share their data with fintech firms and other financial institutions. This is done through an application programming interface (API) that connects an app or website to the bank’s database.
- Autonomous finance — the delivery of personalized, automated financial services through AI.
- Financial learning — creating more advanced products and services to support financial literacy.
- Financial inclusion — facilitating more access to affordable financial services for people with no access to banking services or unbanked individuals.
- Biometric security systems — using more physical characteristics, such as faces or fingerprints, to authenticate users. (This is often used with phones, laptops, and cardless ATMs).
- Regulatory technology (Regtech) — technology that helps other fintech companies and financial institutions comply with regulations.
What do fintech companies do?
Fintech companies utilize innovative technologies, such as AI, machine learning, and data science, to create financial services that are more accessible to the greater public.
What’s a fintech bank?
Some banks may incorporate elements of fintech into their financial services by utilizing new technology that automates and improves their financial offerings. Many online-only banks are considered fintech companies because they operate solely online and use technology to enhance the customer experience.
Is fintech safe?
In general, fintech is fairly safe. While there are vulnerabilities in the fintech infrastructure that can make it a target for cybercriminal attacks, technology continues to evolve to minimize existing fraud risks and diminish threats.
Are there any disadvantages to fintech?
For the most part, the advantages that fintech brings to consumers will outweigh any potential drawbacks, but with that being said, it’s still important to understand what those disadvantages are. Consider some of the following potential drawbacks — many of which the fintech industry is actively working to improve.
- It can be difficult to determine which fintechs are regulated, and what your rights are if something goes wrong.
- Digitization of data makes fintech systems vulnerable to hackers and technology-based risks
- It can exclude those who don’t know how to use, or don’t have access to, the internet or devices like computers and smartphones.
- Because some fintechs operate by gathering and sharing personal information, there’s a potential for misuse of personal data.
By leveraging advanced technology, fintech is not only empowering consumers to take charge of their financial lives, but is also facilitating a path to greater financial literacy. With an emphasis on convenience, speed, inclusiveness, security, and transparency, fintech is changing the world of banking and personal finance. Keep an eye out — even bigger things lie ahead for the fintech industry.