What is Financial Technology or Fintech?
Financial technology which is also known as “FINTECH”, is an economic
industry that uses technology to make financial services more efficient.
Fintech is a tech that attempts improve and automate the
delivery and use of the financial service or financial institutions. Fintech is
utilized to help the companies, business owners and consumers to better
manage their financial operations and processes. It lives by utilizing
specialized software and algorithms that are used on computers and
smartphones. For example, online banking and investment, mutual
investments, online payment apps like Paytm, PayPal, credit cards, etc.
The term “Financial technology” can be applied to any innovation, from
people transacting for the commencement of business to payment through digital money to maintaining double-entry bookkeeping. Ever since the internet revolution/smartphone revolution, financial technology has explosively grown. Fintech which was originally referred to as computer technology which was only applied to the back offices, banks, and trading firms, now has a technological intervention into personal and commercial finance.
In the 21st century when fintech was emerging it was initially applied to
back end systems (are servers and mainframes used by a company to
process data), of established financial institutions. However, fintech has
been shifted to more consumer-oriented services, and in various other
sectors like education, retail banking, etc. Fintech also includes the
development and use of cryptocurrencies such as bitcoin. However,
big money still lies in the traditional banking industry.
The most talked-about and funded fintech startups share the same
characteristic. They are seen as a threat, challenge, and entrenched the
traditional financial providers, as these startups provide faster and better
services to the customers.
EXAMPLES of some fintech startups:
1. Affirm attempts to cut credit card companies out of the way of online
shopping and instead provides another way to their consumer by providing secure immediate, short term loans for the purchase. While the rates are high, Affirm claims to offer a different way to their customer by providing poor or no credit a way to both secure credits and build their credit histories.
2. Whereas Better mortgage attempts to streamline the home mortgage
process and obviate the traditional mortgage broker, with a digital-only
offering that can reward the users with a verified pre-approval letter within 24 hours of applying.
3. Greensky seeks to link home improvement with banks by helping
consumers by eliminating/avoiding entrenched lenders and save on
interest by offering their customers zero-interest promotional periods.
4. Tala provides their consumers with better options than banks, unregulated lenders and microloan institutions(microloan refers to lending a small amount of money with a low rate of interest). Tala offers its consumers microloans by doing a deep dig on their smartphones about their transaction history and seemingly unrelated things, for example, what games do they play on their phones, etc.
5. Cryptocurrencies and digital cash.
6. Open banking, a concept that leans on the blockchain and deposits that the third parties should have access to bank data to build applications that creates a connected network of financial institutions and third-parties providers. Ex, one money management tool mint.
7. Insurtech, which attempts to use technology to simplify and streamline
the insurance industry.
8. Loan originator upstart FICO(as well as other money lenders both
traditional and fintech), obsolete by using different data sets to determine creditworthiness.
9. Ellevest is a digital investment platform that addresses the fact that
women live longer and have unique saving requirements, tend to earn less
than men and have a different salary that can leave less time for savings to grow.
If one word can describe how many fintech innovations have affected the
traditional trading, traditional banking, investment, financial advice, in short, traditional financial and products, it’s ‘disruption’, like the financial products and services that were once the realm of branches, salesman, and desktop have moved towards smartphones/mobile devices to democratize away from the large, entrenched institution. For example, Robinhood, it’s a mobile-only stock trading app which charges no fees for trading.
Business loan providers like Kabbage, Lendio, Accion and Funding circle
offer startup and established business easy, fast platforms to secure
working capital. Oscar an online investment startup, received 165 million
dollars in funding in March 2018. Such funding rounds are not unusual and
occur globally in fintech startups.
Fintech is a keen adapter of automated customer service technology,
from utilizing chatbots to artificial intelligence which interfaces to assist
the customers with basic tasks and keeping down the staffing cost. Fintech is also used to fight fraud by leveraging information about payment history to flag transactions that are outside the norm.
Fintech is used by four broad categories-
• Business to Business (b2b) for banks.
• Business to small businesses
• Business to their clients
Trends towards mobile banking, increased information, data and
more accurate analytics and decentralization of access creates an
opportunity for the four groups to interact in unprecedented ways.
Coming to consumers, fintech companies mostly focus on the
millennials, as being a youngster one can accurately describe
fintech and one more reason is that they are highly exposed to
technology and are keen to adopt the technologies. Fintech targets
millennials as they are huge in size and rising earning potential of
the much-talked segment. Some fintech watchers believe that
focusing on the millennials has to do more with the size of the
marketplace than the ability and interest of Gen Xers and Baby
boomers in using fintech.
Rather, fintech pays very little attention to the older generation as
they believe that they fail to address their problems.
When it comes to businesses, before the advent and adoption of
fintech, a business owner or a startup would have gone to a bank to secure a loan or a startup capital. This creates a relation
between the business owner and the credit provider and even
installs infrastructure like a landline connection with a card reader. Now
through the advancement of mobile technology, those hurdles
are a past thing.
Well, fintech has come to stay in the market. In recent years we have
seen them breaking into our daily lives with the goal of simplifying
our finances, especially through one’s mobile devices. Following
its arrival, there have been many companies and startups that have
rooted around this sector, opening a wide range of possibilities for
companies from areas such as crowdfunding, online payment
platforms or digital cards etc.
Advantages of Fintech
Therefore, what are the benefits which can be drawn out of fintech
The advantages are as follows-
There is a famous proverb that “time is money”. In this case, the
companies save both time and money. The possibility of carrying
out the procedure much faster and through automated processes,
which increases the efficiency of the company. Which also translates
into more than visible economic saving.
Nothing is more flexible than fintech dynamics that are beginning to
prevail in companies today when trends are gaining strength.
Fintech allows one to operate in all kinds of platforms whenever and
wherever in a simple way.
Ex- Being able to request a loan from home with just one click and no
• Democratization of access to financial products
With the rise of all companies that have emerged in the heat of this
scenario, the financial sector has become more inclusive, allowing
to access to a greater number of financial products to a much wider
number of users, who can access certain services.
Disadvantages of Fintech
Well, there are various benefits like personalized and customer
services, analysis, transparency, etc. As it is believed that grass is
always greener on the other side. Hence, the drawbacks of fintech
are as follows-
• To receive a national level identification or charter. Any fintech
the company would have to match the capital and liquidity
requirements that have been set on the basis of OCC.
• A major downside of having national identification for fintech is that
it will be able to bypass all the states of laws and regulations and
this is a disadvantage because many countries have some gaps and
severe setbacks in their laws and regulations and bypassing these,
they could have dangerous loopholes.
• However, fintech is different standard operation and operations
including business activities which are different from traditional
banks which can lead these companies to pay a higher amount as
OCC is imposed on them.
• The ease in the mode of payment has also bought disruption in the
Can the powers that be keep regulation running ahead of
technology? It is unlikely since no one really knows the effect of new
technology until it is deployed and gas been operating in a while,
So, both the problems and advantages of fintech will continue to be
with us in the upcoming days.
Our latest post, check it out here.
Learn more about TechoGhetto