What Is Fintech? Definition, Uses, and Impact Explained

What is fintech? Fintech is an abbreviation for “financial technology,” which refers to any technology used for financial services. Fintech is a broad term that encompasses many different applications, all serving the interests of 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 puts money management in consumers’ hands. Using a smartphone, tablet, computer, or other smart device, you can access banking services on the go, manage your investments (or hand them over to a robo-advisor), and send money to friends.

While some fintech companies offer online banking services and credit cards, others may allow you to invest money, get a personal loan, or even apply for a mortgage – all online or on your phone.

Mobile applications, encrypted blockchain technology, artificial intelligence, and big data make it easier for consumers to manage all aspects of their financial lives in a more streamlined (and instant) way.¹

Fintechs can often cut the cost of financial transactions and pass those savings on to consumers. Many fintech companies also make their offerings more accessible to those underserved by traditional financial institutions.²

Fintech includes all sorts of companies, products, and services. Here are 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 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.

Cryptocurrency

Cryptocurrency is a digital, decentralized currency that exists electronically. It was first introduced with the launch of Bitcoin in 2009. Today, there is a wide range of cryptocurrencies and even crypto savings accounts. Cryptocurrency is entirely electronic; no physical banknotes, coins, or central banks are involved, leaving more autonomy for consumers. However, cryptocurrency is still a highly risky investment, especially for crypto beginners.

Digital wallets

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 payment features, like Pay Anyone, are starting to replace traditional payment methods, like cash, checks, and cards.

Financial apps

Financial apps help consumers easily and efficiently budget, save, spend, and invest their money. Saving and budgeting apps help consumers save money or handle their monthly budget. Stock trading apps allow investors to easily buy and trade stocks from their mobile devices.

Crowdfunding platforms

Crowdfunding platforms allow startups, charities, businesses, and individuals 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.

More fintech applications

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”), and robo-advisors.

Both companies and individuals use fintech in their day-to-day lives. If you’re a member of Chime, for example, you use fintech every time you open our mobile app! The same is true if you belong to any digital bank, manage investments online, or have ever made a digital payment.

While younger people are more likely to use fintech, people across all generations are exploring this tech-powered way of managing finances. A recent study found that fintech usage for banking services spans multiple generations.

When asked if they planned to use banking services from a fintech or neobank in the next 12 months, some members of all surveyed generations said yes:³

• 32% of Millennials
• 22% of Gen Z
• 13% of Gen X
• 5% of Baby Boomers

Business owners have also adopted fintech services. For instance, mobile payment technology makes it easier for small businesses and startup companies to accept credit card payments.

Fintech creates a plethora of advantages for both consumers and businesses. Some of the top benefits of fintech include:

• Consumers get 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 opportunities to use online financial services than they would through traditional means.
• Fintech may result in better deals, as online-only institutions in the financial services industry may have less overhead and can pass savings on.

Technology is a key part of the term fintech; the world of fintech relies heavily on the advancement of new and emerging technologies. Among those technologies are:

• Artificial intelligence and chatbots
• Machine learning
• Augmented reality and virtual reality
• The “internet of things”
• Robotic process automation

These and other technologies reduce employee costs and result in savings (and efficiencies) for customers.

How fintech is regulated depends on the services offered by the financial company. For instance, bank accounts and lenders are regulated by different entities, and cryptocurrency’s regulation continues to evolve.

Regulations may occur at the federal, state, or even local level. Depending on the type of services offered (investing, money transfer, mobile payments, banking, etc.), entities like the Consumer Financial Protection Bureau (CFPB), the Securities and Exchange Commission (SEC), and the Federal Trade Commission may be involved.⁴

Fintech regulation is very much an evolving space. The CFPB continues to propose new regulations over nonbank fintechs offering banking services and digital payments.⁵

The fintech industry is still growing. Over the last decade, global fintech investments have skyrocketed, and people increasingly use digital channels for their financial needs.⁶

Fintech is an ever-evolving industry that continually provides businesses and consumers with innovative ways to improve their financial systems. Technology, machine learning, and AI will continue dominating how 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

“Open banking” is 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. This shared data could mean you could access new financial services that could improve your financial well-being.⁷

Autonomous finance

Autonomous finance relies on self-learning software to optimize processes for financial institutions.⁸ These optimizations can make processes more efficient and lead to faster insights – all of which can result in cheaper and better consumer services.

Financial learning

Fintech creates more opportunities for consumers to improve their financial literacy. Companies can deliver helpful financial education through their apps, which can help consumers make more informed decisions about saving, spending, borrowing, and investing.

Financial inclusion

A hallmark of fintech is that it’s more accessible to those traditionally unable to access banking services. For instance, people without transportation may struggle to get to a brick-and-mortar bank but can easily access bank accounts via a smartphone.

Some fintechs specifically offer bank accounts to consumers rejected by traditional banks or borrowing options to consumers with poor credit scores.

Biometric security systems

Fintech apps often authenticate users using physical characteristics, like faces and fingerprints. This keeps financial data secure.

Regulatory technology (regtech)

Regulatory technology, also called regtech, helps companies keep up with government regulations that are designed to keep us – and our data – safe.

By leveraging advanced technology, fintech empowers consumers to take charge of their financial lives and facilitates a path to greater financial literacy. With an emphasis on convenience, speed, inclusivity, 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.

Find out more common banking terms you should know.