FinTech is short for financial technology – but what is Fintech and what does this mean? FinTech is responsible for some of the major trends which have shaped the financial services industry in recent years; and in this article, we explain its meaning, and look at some examples of how it is used.
In the simplest terms, FinTech is the marriage of financial services with recent technological developments. It is literally all around us – from payment apps such as PayPal or Apple Pay, to digital currency and insurtech.
FinTech has opened the door for a new wave of start-ups to disrupt the financial services industry, providing more efficient and convenient offerings to customers while retaining their profitability. This has caused the institutional ‘big fishes’ to stay on their toes by changing their own offerings in line with FinTech trends.
So let’s bring FinTech to life by throwing a spotlight on some of the most prominent examples:
Digital banking is a brilliant example of how FinTech has brought about the change of the wider banking sector. From innovative features to dematerialised products, digital banking is a concept which is characterised by the absence of physical branches and advisors. Instead, client interactions are done digitally, and everyday transactions can be facilitated through digital payments and mobile banking. The traditional high street banks have had to join the party, bringing out their own banking apps and making it as easy as possible for customers to access services. Click <a href=”http://www.oecd.org/daf/competition/digital-disruption-in-banking-and-its-impact-on-competition-2020.pdf”>here</a> for a full report from the OECD on how digital banking is disrupting the sector.
A couple of decades ago, fledgeling businesses had far fewer avenues when it came to finding funding for their ventures. FinTech has given start-ups a whole new outlook, thanks to crowdfunding platforms such as GoFundMe and Kickstarter. Now, entrepreneurs and companies in their infancies can seek funding from investors around the planet, multiplying their opportunities, and allowing them to spread the word of their idea or business strategy. There are several types of crowdfunding. Perhaps the most popular among start-ups is equity crowdfunding, which asks a large number of investors to put a small amount into a business, and receive equity share in return.
FinTech has certainly made an impact in the insurance industry, in which it has become known as insurtech. Technology such as big data, consumer wearables and smartphone apps has disrupted the insurance sector, increasing convenience for consumers and offering potentially lower rates, while also providing new ways for insurance companies to attain profitability. Then there is the P2P, or peer to peer insurance model which also comes under the insurtech umbrella. This offers a way for social groups – of family members or friends – to support each other in the event of a loss, driving down the premiums associated with traditional insurance policies.
For many of us, this might be the most recognisable form of FinTech. Mobile payments, through apps such as PayPal or Apple Pay, are allowing us to make payments with just a tap of a smartphone, negating the need to carry cash around, enter in card details, or even carry a bank card at all. Contactless payment, as it is also known, incorporates the use of near field communication (NFC) technology, and is now easier than ever from both Android and iPhone handsets. There are also apps designed for speedy transactions between bank accounts – including accounts in different countries – such as Xoom and Circle Pay.
Digital currency is paving the way to a cashless society, offering a new way to pay and be paid for goods and services. It is based on blockchain technology and decentralised networks which make it almost impossible for the currency to be counterfeited.
Investing in stocks can now be done by ‘the man on the street’ with unprecedented ease. You don’t have to go to a stock exchange directly to buy and sell stocks, as it can now be done through a variety of stocktrading apps. Irrespective of your location or budget, there are now ways to trade on the stock market from your smartphone, and this type of FinTech has opened the door to a whole new generation of investors – from casual traders to those who wish to earn a primary or secondary income.
Riding on a wave of technology, FinTech has changed the way in which financial services are offered, and used. It is fair to say there is no turning back.