If you're new to the financial industry chances are that you've probably heard of a word often thrown around—Fintech. While this term may seem new you might be surprised to find that it's actually been around since the nineties. In fact, you're probably already utilizing it in your everyday life without even realizing it. But, what is fintech?
Fintech is a combination of two separate words and industries— financial and technology. It refers to technology that is specifically designed to improve the use of financial services and processes thus helping both consumers and businesses.
This large and rapidly growing industry is one of the fastest-growing tech sectors ranging from mobile banking to cryptocurrency and everything in between.
Fintech can be narrowed down into smaller industries such as wealthtech, investtech, and insurtech.
The great thing about fintech is that it levels the playing field by allowing small companies to compete against large financial institutions. In this industry, it's not about who is the biggest but who is the fastest at adapting effectively to consumer demands. Thus, opening up opportunities for small companies to thrive and more products to become available.
In addition, fintech solutions don't all appear the same or have an equal effect. These targeted services are tailored to fill a specific need and thus look differently across companies.
The fintech companies that succeed are the ones that can successfully bring in new innovations and solutions to consumer and business problems.
What does fintech in today's world look like? Fintech companies use advanced technology like AI and data science with financial institutions to make them safer, faster, and more efficient. It's meant to remove the barrier that many people face when trying to manage their own finances.
An early example of fintech is being able to access your financial information by just logging in to your bank's app. Modern fintech examples can range anywhere from loans to credit scoring and stock trading.
Digital lending is a form of fintech focused on making it easier for individuals to receive loans or lines of credit. Companies like Kabbage directly fund small business loans and are powered by transactional data. On the other hand, companies like Lending Club use peer-to-peer lending for personal loans without involving traditional financial institutions.
This opens up opportunities for companies or individuals that may have been previously rejected. Additionally, it offers more rates and payment options than traditional banks. Typically organizations like these use advanced analytics from digital platforms to enhance their financial solutions.
Real-world examples: Kabbage, Lending Club, Credit Karma, Petal
Mobile banking and payments are the most common and early forms of fintech. Banks can now use digital tools like chatbots and AI to improve customer experience, efficiency, and avoid fraud. This convenience has changed the way individuals interact with their banks and manage their finances. With apps like Venmo, Zelle, and Stripe the use of physical checks or cash has steadily decreased.
Real-world examples: Your bank's mobile app, Venmo, Stripe, Square
Digital currencies are a medium of exchange used to transform value in a new global way. As a digital currency, it has no physical form and only exists virtually, which poses many questions as to whether it is safe and how to regulate it. The rising use of cryptocurrencies and blockchain technology is changing the definition of fintech and the financial industry.
Real-world examples: Gemini, Spring Labs, Coinbase
What is fintech in insurance? Well, it's one of the branches of fintech mentioned before that is quickly becoming its own industry— insurtech. By integrating technology with insurance businesses they are able to help automate processes and expand coverage.
Real-world examples: Oscar Health, PolicyGenius
The biggest gain for the trading and investing world has been the ability for Fintech to find ways to organize and interpret large datasets that are often unwieldy and hard to comprehend. It also makes it easier for everyday folks who want to invest to make well-informed decisions.
Real-world examples: Robinhood, Stash
The question "what is fintech?" is one with far-reaching implications as the term has a large range of applications. As technology evolves, consumers will continue to demand new ways to access and use financial knowledge that simply wasn't technologically possible before.
TuitionEP is a fintech company with a heart for education as we strive to make payments simple for parents, educational institutions, and communities.