What is Fintech?
Fintech (financial technology) is an umbrella term referring to mobile applications, software, and other technologies created to improve and automate traditional forms of finance. Popular examples include payment apps like Paypal, Venmo, and others; mobile banking and automated portfolio managers such as Betterment; trading platforms like Robinhood; and blockchain networks housing encrypted transactions.
Fintech’s Purpose
The goal of fintech is to simplify financial transactions by streamlining them and making them more accessible and affordable for consumers. Fintech can also apply to companies and services utilizing artificial intelligence, big data, and machine learning.
With the rapid growth of online banking, AI, and blockchain, fintech is considered a newer concept within the technological space. However, credit cards date back to the 1950s, ATMs date back to the 1960s, and, in 1998, PayPal was founded, introducing one of the first fintech companies to operate primarily on the internet. Today, fintech has progressed and changed in response to several major trends:
- Digital banking growth is attributed to its simplicity and convenience. Consumers can manage their funds, request and pay loans, and purchase insurance through digital-first banks and apps.
- Blockchain technology has grown quickly over the last few years and will continue its rise with the industry’s need for data encryption. This technology allows for decentralized transactions without the involvement of a government entity or other third-party organization.
- Artificial Intelligence and Machine Learning help fintech companies to scale easily. These technologies can reduce operational costs, increase the value provided to clients, expand available services, and detect fraud. As they become more affordable, they will play a huge part in brick-and-mortar banks transitioning to digital. AI also provides insight into consumer behavior and spending habits, market change predictions, and data-driven business strategies.
Fintech Now and in the Future
Fintech is now a huge part of day-to-day life. For instance, paying for an Uber with your connected bank account, uploading a check with your smartphone camera, and splitting the check at dinner with a friend using Venmo, are all made possible by fintech technology. According to Ernst & Young’s recent Global FinTech Adoption Index, nearly two-thirds (64%) of the world’s population was using fintech applications in 2019.
Despite the high level of usage, questions surround the safety of fintech for consumers and companies alike. Since many fintech technologies and applications are newer to the space, they remain unregulated, unlike banks. This does not necessarily mean consumers should not trust fintech companies with their money and information. However, caution and care can be beneficial: in the E&Y survey, 71% of fintech adopters agreed with the statement, “I worry about the security of my data when dealing with companies online.” But, 60% agreed they’d prefer to view all financial products in one place through an online or app-based tool. Due to the simple fact that there is no consensus on exactly how safe fintech solutions are, and because of the magnitude of advanced technologies, it will remain difficult to determine.
Despite economic uncertainty, consumers can expect to continue to see the emergence of fintech technologies, software, and companies in the future. Businesses and consumers increasingly rely on technology to help navigate their financial livelihoods. Fintech is now so intertwined in our everyday life that despite security concerns, applications and influence will only continue to grow.
