Consider your life prior to COVID-19 for a minute. Fintech was the unsung hero of your Friday night in those less socially isolated days.
You deposited your paycheck by taking a picture of it using your smartphone and sending it to the mobile app for your bank. You consulted Mint in order to determine your monthly entertainment budget. You and your friend split the bill during dinner using Venmo. Later, you tapped your phone on the bar’s Apple Pay terminal to purchase a drink. When the time came to return home, you jumped in an Uber and paid using a saved credit card—or even Bitcoin.
Even if you are unaware, fintech is almost certainly a significant aspect of your personal and professional life. According to Ernst & Young’s 2019 Global FinTech Adoption Index, fintech has been adopted by more than two-thirds (64 percent) of the world’s population, up from 16 percent in 2015. Three out of every four customers, the research states, utilized money transfer and payment options last year.
As is the case with many growing technological industries, fintech may be a perplexing topic, owing to the vast variety of tools, platforms, and services that lie under its expansive cover. If you’re still unsure what fintech is, here’s an explanation.
What Is Financial Technology (Fintech)?
Fintech is a combination of the terms “financial technology” and “financial services.” It’s an umbrella phrase for any technology that augments, streamlines, digitizes, or disrupts conventional financial services.
Fintech is a term that refers to software, algorithms, and apps that are used in conjunction with computer- and mobile-based technologies. It may also incorporate hardware, such as linked smart piggy banks or virtual reality (VR) trading platforms. Fintech platforms make routine actions such as depositing checks, transferring money between accounts, paying bills, and applying for financial help possible. Additionally, they incorporate technically complex notions like as peer-to-peer lending and cryptocurrency exchanges.
The annual Forbes Fintech 50 list highlights some of the most exciting platforms in the market. The 2020 list includes firms such as Chime, a financial technology startup whose banking services are handled by The Bancorp Bank or Stride Bank and whose debit card is issued by The Bancorp Bank or Stride Bank, and Affirm, a provider of quick, fixed-rate point-of-sale loans. Stripe was also a favorite of investors this year, receiving a $1 billion vote of confidence from Sequoia Capital, General Catalyst, and Visa, among others.
Fintech subcategories include wealthtech (apps such as Wealthsimple, an online investment management service), investtech (apps such as Acorns, which allows users to round up purchases to the closest dollar and invest the difference in a diverse portfolio), and insurtech (such as Next Insurance, a mobile-first carrier). It has applications in practically every sector, geography, and business style.
Banks use fintech for both back-end operations—for example, monitoring account activity behind the scenes—and consumer-facing solutions, such as the app you use to check your balance. Individuals utilize fintech for a variety of purposes, ranging from tax computations to dabbling in the markets. No previous investment knowledge is required.
Businesses depend on fintech to process payments, conduct e-commerce transactions, manage accounting, and, more recently, to access government support programs such as the Payroll Protection Program (PPP). Following the COVID-19 epidemic, an increasing number of firms are turning to fintech to offer features such as contactless payments and other technology-driven transactions.
How Has Fintech Changed Over Time?
Simply because fintech is trendy does not mean it is novel. While the word was first introduced to the Merriam-Webster dictionary in 2018, the notion stretches all the way back to the 1960s. ATMs, for example, were once at the forefront of fintech innovation, as were signature-verification technology, which were introduced by banks in the 1860s.
Fintech has evolved from being associated with scrappy startups to being a significant component of established and legacy financial institutions in recent years. Whereas the word was originally mostly associated with Silicon Valley disruptors shaking up the major banks, numerous businesses have now partnered with the incumbents they claimed wanted to replace.
As a consequence, some of the most recognizable organizations in the world now have their own fintech nest egg. In 2019, JP Morgan committed $25 million to fintech companies. Capital One has established fintech-infused “banking cafés” in order to attract youthful, technologically aware consumers. Additionally, Citi developed the Citi Developer Hub in 2016 to encourage third-party developers to test and provide feedback on application programming interfaces (APIs).
Fintech has been demonstrating its worth in the face of the coronavirus epidemic, despite the fact that some of its incarnations have been harmed. For example, despite the temporary closure of Capital One cafés, banks and credit unions throughout the United States have been able to transact — and provide COVID-19 assistance and services — online. Extended wait times for telephone service may also be avoided by going online or using a bank or credit union’s mobile application.
What Impact Does Fintech Have on Me?
Typically, the financial services industry is not linked with nimbleness. However, consumers and company owners now expect—and increasingly require—adaptability and rapid iteration (not to mention immediate pleasure).
Fintech enables the acceleration of activities that formerly required days, weeks, or even months, such as obtaining a credit report or initiating an international money transfer. Upstart and TransferWise enable these processes to be completed in a fraction of the time required even five years ago. There has been debate about how fintech may aid in the expediting of normally bureaucratic procedures such as the distribution of economic stimulus funding.
Fintech also has the potential to increase financial inclusion: in certain regions of the globe, fintech meets unmet needs for the unbanked in the absence of government or institutional assistance.
Fintech is able to speed historically clumsy procedures in part because it is based on numbers and algorithms rather than human abilities and views. While many fintech services combine parts of conventional brokers/advisors with algorithms, others assist customers in navigating financially challenging activities without requiring them to engage with a real, live person.
For example, clients may now skip conventional bank locations to apply for loans (Lending Club) or even mortgages (Better). Casual investors no longer need to meet with financial gurus face to face to go through the ins and outs of their portfolios painstakingly—they can examine their alternatives online or even enlist the assistance of chatbots to make selections.
To demonstrate how far fintech has advanced in transforming the financial services industry into a Jetsons-style reality, consider robo-advisors—digital platforms that give automated, algorithm-driven investment recommendations and financial planning guidance with little to no human supervision. Betterment, a financial counseling service that bills itself as “the smart money manager,” is one such platform in this space that reached the 2020 Forbes Fintech 50.
Additionally, several fintechs are mobilizing to assist clients in navigating the financial turbulence created by the epidemic. Certain companies, such as Lending Club, are actively offering financial assistance and building aid programs to help the most vulnerable. Others are concentrating their efforts on aiding those on the front lines. Stripe, for instance, is expediting the development of support for telemedicine systems.
Finally, the impact of fintech on your life is a case-by-case affair. Apart from chores that have been engrained in day-to-day banking, such as online account monitoring, the influence of fintech on your life is entirely subjective, determined by the number of services with which you engage. You may go as deeply as you want or just remain on the surface.
Is Fintech a Secure Industry?
One fascinating way fintechs have impacted the financial services sector is via their impact on customer trust. The EY research reveals an alarming trend: Approximately 68% of respondents indicated a readiness to employ financial instruments produced by unconventional (nonfinancial) entities. Additionally, 89% of SME adopters indicated a willingness to exchange data with fintech organizations.
In essence, platforms no longer require Wall Street cachet to get individuals and companies to share financial data or even their hard-earned money.
However, it has to be seen if this faith is justified, or whether the possible advantages exceed the hazards. Engaging with fintechs—many of which remain completely unregulated, especially in the Wild West of cryptocurrencies and blockchain technology—can expose you to unintended or unanticipated threats.
The notion that fintechs have a higher moral standard than established banks is also proven to be mostly untrue. As fintech expert Ron Shevlin notes, banks and consumers who engaged in “fintech fetishism”—an exaggerated optimism associated with its early iterations—are now confronted with a hard reality check as several promising firms encounter challenges related to and unrelated to the coronavirus outbreak.
It’s sensible to view glitzy, but untested, fintech startups and their grandiose claims with a fair dosage of skepticism. As digital data grows in size and importance to daily life, so do large-scale security snafus. Recent breaches, especially high-profile Bitcoin heists, have raised public awareness of these vulnerabilities.
There is currently no agreement on how safe fintech solutions are across the board. Such promises are unlikely to be forthcoming, given the breadth and extent of fintech expansion. However, customers are wise to exercise caution: 71% of fintech adopters answered affirmatively to the EY poll question, “I am concerned about the security of my personal data while transacting with businesses online.”
What Does the Future of Fintech Hold?
Nobody knows for certain what financial advances are on the future, and the pandemic’s instability exacerbates this uncertainty. Early estimates for 2020 that the mature industry will continue to expand have proved to be just partly correct. Deloitte adds that interest rate decreases and the economic roller coaster caused by the coronavirus have upended industry beliefs about fintech’s near prospects.
Fintechs, like their clients, have had financial setbacks—some have been forced to lay off or reduce personnel, while others are struggling to gain investor backing amid rapid migrations to virtual meetings with venture capitalists. At the same time, demand for fintech is likely at an all-time high: businesses and banks consumers increasingly depend on technology to assist them in managing their financial lives.
According to GAD Capital, economic recovery will coincide with fresh potential for fintech. This may be especially true in a company climate that has grown ever more receptive to digital financial services and e-commerce.
Longer-term tendencies for fintech’s future remain rather stable. Consolidation, cooperation, and continuous engagement between traditional banks and fintech seem to be forthcoming. And customers can almost certainly anticipate the continuous appearance of firms advertising glitzy, headline-grabbing services such as blockchain, cryptocurrency, artificial intelligence, and peer-to-peer transactions.
What’s the bottom line? Fintech is now a recognized important actor in the global economy, economic sector, and broader fabric of contemporary society. The field is vast, constantly expanding, and looks to be here to stay.