The term is a broad and rapidly growing industry serving both consumers and companies. From mobile banking and banking to cryptocurrency and investment apps, fintech has broad applications.
The industry is enormous. According to CB Insights, you will find”41 VC-backed fintech unicorns worth a combined $154.1B.” One driving factor is that a lot of conventional banks are supporters and adopters of the technology, actively investing in, acquiring or partnering with fintech startups as it’s easier to offer digitally-minded customers what they desire, while also moving the industry forward and staying relevant.
How does fintech work?
Fintech isn’t a new industry, it’s one that has evolved very fast. Technology has, to a degree, been part of the financial world, while it’s the debut of credit cards from the 1950s or ATMs, electronic trading floors, personal finance programs and high-frequency trading in the decades which followed.
The bowels supporting fiscal technology varies from project to project, application to application. A number of the newest advances, but are using machine learning algorithms, blockchain and data science to perform everything out of process credit dangers to run hedge funds. In fact, there is now an entire subset of regulatory engineering dubbed”regtech” designed to navigate the intricate world of compliance and regulatory issues of industries like, you guessed it, fintech.
Although the industry conjures up images of startups and industry-changing technologies, conventional businesses and banks will also be always adopting fintech solutions for their own purposes. Here’s a quick look at how the industry is both disrupting and enhancing some areas of finance.
Mobile banking is a large region of the fintech industry. From the world of private finance, consumers have increasingly demanded easy digital access to their bank accounts, especially on a mobile device. Most major banks currently offer some kind of mobile banking feature, especially with the rise of neobanks.
Neobanks are essentially banks with no physical branch locations, serving customers with checking, savings, payment loans and services on a completely mobile and electronic infrastructure. A Few Examples of neobanks are Chime, Simple and Varo.
Running parallel to fintech is the birth of cryptocurrency and blockchain. Though the two are unique technologies considered outside the world of fintech, you will find free applications where all three can work together to deliver new kinds of financial services.
Investment & Savings
Fintech has caused an explosion in the amount of savings and investing programs in the past couple of decades. When these apps differ in approach, each utilizes a mixture of savings and easy, little dollar investment to introduce buyers to the markets.
Machine Learning & Trading
Having the capability to predict where markets are headed is your Holy Grail of finance. With billions of dollars to be made, it is no real surprise machine learning has played an increasingly significant function in fintech. The power of this AI-subset lies in its capacity to run huge amounts of information through calculations designed to spot trends and hazards.
Moving money around is something fintech is very good at. The term”I will Venmo you” is now a replacement for”I will pay you later.” Venmo, naturally, is a go-to mobile payment system. Payment businesses have changed how we all do business. It’s easier than ever to send money digitally anywhere in the world. Along with Venmo, popular payment businesses include Zelle, Paypal, Stripe and Square.
Fintech can also be overhauling credit by streamlining risk evaluation, speeding up approval processes and making accessibility easier. Billions of people around the world can now apply for a loan on their mobile devices, and new data points and better risk modeling is expanding credit to underserved people. Additionally, consumers can ask credit reports multiple times every year with no dinging their rating, making the entire backend of this lending world more transparent for everyone. Credit firms worth noting comprise Tala, Petal and Credit Karma.
While insurtech is quickly becoming its own industry, it falls under the umbrella of fintech. Insurance is a somewhat slow adopter of technology, and many fintech startups are partnering with conventional insurance companies to help automate procedures and expand coverage. From mobile vehicle insurance to wearables for health insurance, the business is staring down heaps of innovation.