What is Financial Technology (Fintech)?

Fintech describes emerging technology that is used to deliver financial services in new and innovative ways, to both consumers and businesses alike. 

Fintech has emerged in the 21st century to help consumers and business owners more efficiently operate and manage their finances, with software and hardware solutions, as well as mobile apps.

Fintech originally referenced the back-end technology systems used to power banking and investment products and services, but with the advent of the smartphone, Fintech now powers banking, investing, and other financial management services directly on mobile devices. 

Fintech is also at the forefront of the development of cryptocurrency (such as Bitcoin), as the blockchain technology now powers the entire cryptocurrency market.

Fintech Examples

Fintech companies sprang to life in the past 20 years, and have become household tools for consumers looking to manage their money better. Here are a few examples of Fintech companies and technology that are prevalent today:

Mobile Banking

One of the most prevalent innovations of Fintech is the introduction of mobile banking

Most every bank now offers a mobile banking app, allowing users to manage most banking services, including mobile deposits, account transfers, online bill payment, and even categorizing purchases to view spending trends.

Mobile Payments

Mobile payments have become commonplace at most companies, allowing consumers to pay for goods or services online. 

This technology has now extended into retail stores, with many “contactless” payment options available, including mobile apps and RFID credit cards. Companies such as Paypal, Google, and Apple have led the way into making mobile payments a seamless experience for consumers.

Digital Lending

Another space that has fully embraced Fintech advances is the lending marketplace. 

This includes banks that offer loan applications fully online, as well as new services that offer peer-to-peer lending or instant approval for personal and business loans. Fintech has improved the underwriting process for lending and borrowing, using advanced algorithms to qualify the credit-worthiness of individuals and businesses.

Insurance

Applying for insurance was once a lengthy process, with weeks of underwriting for some types of insurance. Filing insurance claims usually meant a phone call, paperwork, and lots of back-and-forth before making any progress. Fintech has made the process of obtaining and using insurance far more efficient. 

With improved underwriting processes and algorithms, instant approval for car or life insurance has become the norm. Filing a car accident claim or getting a tow truck on site is now only a few taps away on your car insurance app. Fintech has taken the complicated calculations of insurance and created a streamlined process for businesses and consumers alike.

Investing and Trading

The investing and trading world has been completely transformed by Fintech, with the advent of mobile trading apps and online brokerage accounts

Retail investors now have access to powerful trading tools, investing education, and a wide array of investment options at their fingertips. Apps like Robinhood make trading stocks easy (and helped drive trading fees down to zero), and the emergence of robo-advisory services has helped regular investors automate their retirement planning. Investing has forever changed, and Fintech is at the forefront of shaping the industry.

Cryptocurrency (Bitcoin)

Cryptocurrency has emerged as a new asset class and is an example of Fintech creating something brand new. 

Blockchain technology was created as a peer network to act as a transparent way to validate financial transactions, starting with Bitcoin as the first digital currency. It has now morphed into a new type of financial asset, with new ways to manage financial transactions and services being created every day.

How Fintech is Changing Financial Services

Financial services were traditionally offered by large banks and investing firms to help consumers with their banking and investing needs. Fintech has disrupted the industry to offer more transparency, education, and user-friendliness, as well as making financial services completely digital. 

Fintech is also helping users automate their personal finances, with apps like Wealthfront that help users plan for retirement, travel, and other financial goals by managing their investments automatically. 

Related --> Read our Wealthfront Review

Other money apps like Personal Capital show users a complete financial picture, tracking their spending and net worth, while also giving direct access to a team of financial advisors. 

Related --> Read our Personal Capital Review

With the move to a digital financial system, Fintech companies continue to create innovative solutions to make managing your finances easier. Companies are also seeing improved financial workflows with digital accounting software, inventory tracking, and HR software that helps companies manage the finances and benefits of their workforce with ease.

The driving force behind Fintech is improving efficiency through automation, and helping consumers and businesses get more done, quicker.

What is the Future of Fintech?

Fintech is becoming big business, with many Fintech companies going public with $1 billion+ valuations, such as Stripe, and over $22 billion in funding in the first quarter of 2021 alone! [1] 
This shows that large investors are investing heavily into the future of Fintech companies to continue coming up with innovative solutions to how we manage our money.

Cryptocurrency and blockchain technology is also disrupting the global financial industry, with institutions investing in Bitcoin, as well as the technology companies behind new crypto solutions. Global banks are looking to launch digital currencies, in a push toward a more digital centralized monetary system.

The future of Fintech is currently unlimited, showing no signs of slowing. Massive growth and a move toward the digitization of all things financial are on the horizon, and Fintech companies are leading the charge.

Keep Reading --> The 13 Best Robo Advisors for 2021 - Pros, Cons, & Top Picks
 

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Rachel Siegel, CFA
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Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years creating professional financial certification exams and another 20 years of college-level teaching.

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