What Is Fintech and How It Affects Us? | Investment Series

Think back, for a minute, to your pre-Covid-19 existence. In those less socially detached days, fintech was the unsung hero of your Friday night.

You deposited your paycheck simply shooting a picture on your smartphone and uploading it using your bank’s mobile app. You checked Mint to calculate your monthly entertainment spending. At dinner, you and your buddy split the cost using Venmo. Later, you tapped your phone at the bar to pay for a drink. When it was time to drive home, you jumped in an Uber and paid for the journey with a saved credit card—or even in Bitcoin.

Even if you don’t know it, fintech is likely a large part of your personal and professional day-to-day. Ernst & Young’s new Global FinTech Adoption Index indicates over two-thirds (64%) of the world’s population was utilising fintech apps in 2019, up from 16% in 2015. According to the research, 3 out of 4 customers had become users of money transfer and payment options.

As with many new technological industries, fintech may be an unclear notion due to the huge variety of tools, platforms and services that fall under its wide cover. If you’re still asking yourself, “Exactly what is fintech?” here’s a breakdown.

What Is Fintech?

Fintech is a portmanteau meaning “financial technology.” It’s a catch-all word for technology used to supplement, simplify, digitize or disrupt conventional financial services.

Fintech refers to software, algorithms and apps for both desktop and mobile. In certain situations, it involves hardware, too—like internet-connected piggy banks.

Fintech systems offer run-of-the-mill actions like depositing checks, transferring money between accounts, paying bills or applying for financial help. They also support technically complicated ideas, such peer-to-peer lending and crypto exchanges.

Businesses depend upon fintech for payment processing, e-commerce transactions, accounting and, more lately, support with government-assistance measures like the Payroll Protection Program (PPP) (PPP). In the aftermath of the Covid-19 outbreak, more and more companies are turning to fintech to accept contactless payments or implement other tech-fueled improvements.

What Is Fintech Banking?

Banks utilise fintech for back-end processes—behind-the-scenes monitoring of account activity, for instance—and consumer-facing solutions, like the app you use to check your account balance. Banks also employ fintech to underwrite loans. Individuals utilise fintech to access numerous bank services, like paying for goods with a smartphone and obtaining financial advice on their home computers.

Fintech Companies

The annual Forbes Fintech 50 recognizes the trendiest and biggest firms in the field. The 2022 list is led by Stripe, a decade-old payment processor with a $95 billion value. In second position is Klarna, a 16-year-old Swedish startup that gives clients financing for purchases at several big stores; it was valued at $46 billion.

Fintech branches off into a number of more granular industries: wealthtech (apps such as Wealthsimple, an online investment management service for Canadians), investtech (like Acorns, which lets users round up purchases to the nearest dollar and invest the difference in a diversified portfolio) and insurtech (such as Next Insurance, a mobile-first carrier) (such as Next Insurance, a mobile-first carrier). It covers practically every sector, geographical market and company type.

How Does Fintech Work?

Fintech offers consumers and organizations with access to conventional financial services in creative ways that previously weren’t accessible. For instance, many traditional banks’ mobile applications now allow consumers on-the-go access to bank services, including the ability to examine your balance, transfer cash or deposit a check. Meanwhile, robo-advisors like Betterment are less expensive and more convenient than in-person investing guidance from a financial advisor.

Fintech also automates numerous services companies need, such as loan underwriting and real estate evaluations. Artificial intelligence mixed with enormous troves of consumer data helps fintech organisations understand their clients and supports their marketing efforts, product creation and underwriting.

How Has Fintech Evolved?

Just because fintech is buzzy doesn’t imply it’s brand-new. Although Merriam-Webster only introduced the word to its vocabulary in 2018, the notion extends back decades. ATMs, for example, were previously on the leading edge of fintech innovation, as were signature-verifying devices originally deployed by banks in the 1860s.

In recent years, fintech has changed from being associated with scrappy startups to being an important element of established and legacy financial institutions. Many large banks are either cooperating with fintech businesses or initiating fintech efforts of their own. Goldman Sachs, for instance, utilised fintech to develop an online bank called Marcus in 2016, while JP Morgan Chase invested $25 million in fintech firms in 2019.

Fintech has been demonstrating its utility in the face of the Covid-19coronavirus epidemic, even as some of its incarnations suffer. Though the Capital One cafés were briefly shuttered during lockdowns, banks and credit unions around the U.S. were able to transact—and give Covid-19 assistance and services—digitally.

How Does Fintech Affect Me?

The financial services industry isn’t often linked with nimbleness. But nowadays, flexibility and speedy iteration (not to mention immediate pleasure) are exactly what consumers and company owners expect—and, increasingly, require.

Fintech helps speed procedures that traditionally took days, weeks or even months. Fintech also offers the potential to enhance financial inclusion: In certain regions of the globe, where governmental or institutional backing is inadequate, fintech meets demands for the unbanked.

Part of the reason fintech can speed historically complex procedures is because it’s based on ones and zeros rather than human talents and views. While many fintech services contain parts of both conventional brokers/advisors and algorithms, others allow customers accomplish financially complicated activities without engaging with a person at all.

Today’s clients may skip conventional bank locations for things like applying for a loan (LendingClub) or even a mortgage (Better) (Better). Casual investors no longer need to meet face-to-face with financial gurus to meticulously go through the ins and outs of their portfolios—they can explore their alternatives online or even enlist the aid of chatbots to make selections.

To highlight precisely how far fintech has moved the financial services business into a Jetsons-style reality, look no further than robo-advisors. These digital platforms give automated, algorithm-informed investment choices and financial planning assistance with little-to-no human monitoring. One such platform in this field that reached the 2020 Forbes Fintech 50 is Betterment, an advice service that considers itself “the smart money manager.”

Ultimately, the answer to the issue of how fintech influences your life is a case-by-case matter. Outside of chores like online account monitoring, which has become integrated into day-to-day banking, the influence of fintech on your life is a personal matter governed by how many services you choose to connect with. You may dig as deep as you like or just remain surface-level.

Is Fintech Safe?

Engaging with fintechs—many of which remain highly unregulated, especially in the Wild West domain of cryptocurrencies and blockchain technologies—can lead to undesired or unanticipated danger exposure.

The concept that fintechs adhere to a higher moral standard than the major banks is proving mostly bogus. As fintech expert Ron Shevlin points out, banks and consumers participating in “fintech fetishism”—an exaggerated optimism associated with its early iterations—are now experiencing a severe reality check as many promising firms confront challenges both owing to and independent of the Covid-19 outbreak.

It’s sensible to approach glitzy, but untested, fintechs and their grandiose claims with a fair dose of scepticism. As digital data grows orders of magnitude more widespread and important to day-to-day existence, so, too, do large-scale security snafus. Recent breaches, especially high-profile bitcoin heists, have brought these vulnerabilities to public notice.

To far, there’s no agreement on just how safe fintech products are across the board. Such guarantees will likely be difficult to come by, given the extent and size of fintech growth. But customers are prudent to be wary: In the E&Y poll, 71% of fintech adopters agreed with the statement, “I worry about the security of my personal data when interacting with firms online.”

Fintech and New Tech

Of all the innovations that have influenced financial services, the distributed ledger technology that underpins blockchains and makes cryptocurrencies possible is undoubtedly the most important. But lower-profile new technologies may be much larger influencers down the line. Some of the more fascinating include:

Internet of Things. ATMs that can detect how many clients are in line are an excellent illustration of this, as are sensors that allow contactless transactions.

Augmented reality and virtual reality. Virtual stock trading is one possible application for these still-emerging technologies.

Smart contracts. Contracts that can automatically execute when specific circumstances are satisfied may enhance security, boost efficiency and minimise the cost of transactions.

Bots. Also known as robotic process automation, these programmes to automate repetitive processes may free up people from mundane labour, allowing them to concentrate on more productive activities.

Voice-enabled payments. Smartphones with speech recognition software help individuals check accounts, transfer money and finalise transactions simply by speaking.

Fintech Regulation

No single regulatory body supervises fintech. Some fintechs, in fact, operate entirely outside or on the margins of present regulatory scrutiny. For the remainder, regulation and licencing are handled by a combination of municipal, state and federal officials.

States often supervise lending, insurance and payment systems. For instance, PayPal must be licenced in every state and meet local payment transmission requirements. However, federal monitoring overlaps state regulation, since PayPal is also within the authority of the federal Consumer Financial Protection Bureau.

Additional oversight comes from the Federal Trade Commission, the Securities and Exchange Commission and—for fintechs regulated as banks by the Office of the Comptroller of the Currency—the Federal Deposit Insurance Corp. Fintechs that work with banks frequently have to follow the same standards as their partners, therefore depending on the kind of bank, they may be indirectly controlled by federal, state and municipal authorities.

The subject of how fintechs will be monitored is a prominent concern within financial regulatory circles. This is a constantly changing subject as the regulatory rule-makers strive to stay up with the fintech entrepreneurs.

What Does Fintech Hold for the Future?

Nobody knows for sure what financial advances are on the horizon, and this uncertainty has been heightened by the upheaval generated by the epidemic. Fintechs, like their clients, have faced financial setbacks—some have had to reduce or furlough personnel, while others are failing to acquire investor backing. At the same time, demand for fintech has likely never been higher: Businesses and banking clients increasingly depend on technology to assist manage their financial lives.

Despite the present economic instability, broader and long-term tendencies for the future of fintech remain essentially stable. Consolidation, alliances and further interactions between traditional banks and fintechs look likely. And customers can undoubtedly expect to see the continuous rise of firms advertising dazzling, headline-worthy services, including the likes of blockchain, cryptocurrency, artificial intelligence and peer-to-peer transactions.

In Conclusion

Fintech is now so entrenched in financial services that it’s all but omnipresent. Consumers, corporations and all types of financial services enterprises are increasingly resorting to inventive mixes of software, hardware and data to build and provide both new and conventional financial products and services.

Fintech is securely intertwined in the fabric of our financial civilization, and it looks its impact will only expand in the future.

Happy Investing! 😉