Financial technology, which encompasses a wide range of innovations in the way people conduct business, includes both digital money and double-entry accounting. However, since the internet and mobile internet/smartphone revolutions, financial technology has exploded in popularity, and fintech, which originally referred to computer technology applied to the back office of banks or trading firms, now encompasses a wide range of technological interventions into personal and commercial finance.
Fintech now includes a wide range of financial processes that are completed without the involvement of a person, such as money transfers, check depositing with your smartphone, requesting for credit without visiting a bank office, obtaining finance for a company, and monitoring your investments. According to EY’s 2017 Fintech Adoption Index, almost one-third of customers use two or more fintech services, and this group is becoming increasingly acquainted with fintech in general.
What is Financial Technology – Fintech?
Fintech refers to the development of technology with the goal of improving and automating the delivery and usage of financial services. Fintech, at its heart, is used to help organisations, company owners, and individuals manage their financial operations, procedures, and lifestyles more successfully by utilising specialised software and algorithms on computers and, increasingly, smartphones. It is a combination of the words “financial technology” and “financial technology.”
It is a phrase used in the twenty-first century to describe a type of back-end system technology utilised by conventional financial organisations. Since then, however, there has been a trend toward more consumer-oriented services and, as a result, a more consumer-oriented definition. To mention a few, fintech currently spans a wide range of industries and businesses, including education, retail banking, fundraising and charity giving, and investment management.
Furthermore, fintech includes the creation and use of cryptocurrencies such as bitcoin. While that part of fintech may receive the most attention, the majority of the money is still invested in the traditional global banking industry and its multitrillion-dollar market capitalization.
Categorizations of Financial Technology
Traditional banks and financial services organisations are under severe competition these days. Innovators in financial technology are transforming several aspects of the financial services business. As a CIO, you must be well-versed in many aspects of financial technology. With this information, you can stay up to date on trends and recruit the IT talent your company needs to be competitive.
The financial technology sector is divided into several key categories, some of which are listed below.
International Money Transfers
Domestic money transfers have always been prohibitively costly. Banks and traditional money transfer firms charge up to 8% in fees. When big quantities of money are transmitted, these charges quickly add up. Worse, conventional transfers are time-consuming.
The focus of financial technology firms in this market is on faster and less expensive international money transfers. Ripple, a business in this category, can execute international money transfers in less than eight seconds, according to the Financial Post.
Financial technology companies are altering the loan process. Individuals do not need to borrow money from banks or credit unions any longer. Currently, a slew of FinTech businesses are lending directly to customers.
There are several websites where customers may apply for loans and receive rapid responses. FinTech lenders do credit checks on customers quickly and automate the underwriting process. FinTech lenders like Kabbage and Borrowell can now issue loans to a larger group of clients thanks to these innovative tactics.
Payments are another area of financial technology. Rather than relying on traditional banking institutions, money can be exchanged between friends and family through companies in this category. Banks typically demand high fees for basic transactions like peer-to-peer transfers.
FinTech companies make it possible for consumers to transfer and receive money rapidly and affordably. Because of technological breakthroughs such as blockchain, these organisations can now manage payments more cost efficiently than banks.
Another key area of financial technology is personal finance. Clients previously had to seek personal finance advice from bank financial advisers. They would have to budget using spreadsheets or the envelope method.
There are already various programmes available that may assist and guide users in managing their personal money. Consumers may get personal finance advice at any time and from any location. Mint, for example, helps clients create budgets, whereas Level Money helps people save. FinTech companies also offer retirement planning and investment advice.
Equity finance is also being reshaped by financial technology businesses. Businesses in this sector of the FinTech industry are making it easier to get funds. Certain organisations try to match qualified investors with pre-approved businesses. Others use crowdsourcing, which allows anybody to invest in new enterprises.
These services assist companies in streamlining their fundraising activities. Because the entire process can be done online, virtual fundraising is also more convenient for investors.
Financial technology firms have recently branched out into the insurance business as well. Many firms in this field are concerned with distribution. New technologies, such as applications, are being employed to reach out to clients who are currently uninsured. Furthermore, they are more adaptable than traditional insurance.
People who want to borrow a friend’s car, for example, can get short-term car insurance. Due to the highly regulated structure of the insurance sector, businesses in this category prefer to collaborate with established insurance firms.
Banking for Individuals and Families
The financial technology business also includes consumer banking. Because traditional banks demand exorbitant fees, organisations in this category provide clients an alternative.
Furthermore, these companies have the ability to deal with underbanked persons. Consumers who are unable or unwilling to obtain a credit card may be able to receive prepaid cards from FinTech companies. Green Dot and Netspend are also active in this market. Certain companies, such as Moven, provide digital banking services. In lieu of traditional bank accounts, consumers can create digital bank accounts.