For centuries, traditional banks have dominated the world of finance. However, those days are over since there is a new breed of financial services that emerged, leveraging fintech in various innovative ways.
Financial technology (Fintech) is a service or program that exists outside of the traditional banking system. A common aspect about these new financial services is that banks are no longer needed as intermediaries. In other words, banks are taken out of the equation.
Fintech companies consist of both startups and already established finance and tech companies that are attempting to improve or replace the utilization of financial services provided by existing conventional financial companies. On the contrary, several existing financial institutions are already employing the use of fintech-based solutions to develop and improve their services as well as achieving a more improved competitive reputation.
The World of Fintech and Its Many Uses
Finance is regarded as one of the industries most susceptible to disruption by software mainly because just like in publishing, financial services are simply made up of information rather than tangible goods. A good example would be blockchains as they have the ability to lower the cost of transacting in a financial arrangement.
While traditional financing solutions have managed to remain widely-used and popular amongst businesses and consumers alike even in today’s modern and high-tech era, apparently a new wave of startups is significantly and increasingly ‘shoving aside’ global banks as they offer new, easier and faster ways for people to manage their finances.
Below are some of the most commonly active areas that use fintech innovation:
Cryptocurrency or digital currency
Example: Coinbase is a secure online platform where users buy and sell (trade) digital currency. Users can manage their digital currency via mobile. Coinbase is available in over 30 countries and allows the trading and transacting of various digital currencies including Bitcoin, Bitcoin Cash, Litecoin, and Ethereum.
Unbanked or underbanked
Example: Tala is a financing solution providing credit to disadvantaged or low-income individuals who are otherwise underserved or ignored by traditional banks or mainstream finance service companies. Available in Kenya, Mexico, Tanzania, and the Philippines.
Microloans and microcredit
Example: OnDeck aims to support and provide capital to small business owners. Founded in 2007, OnDeck is the biggest online small business lender in the United States.
Mobile and online payments
Example: Braintree is a division of PayPal that provides secure payment services to businesses.
Peer-to-peer (P2P) transfers
Example: GreenSky is a business and consumer-oriented loan service providing not only home improvement loans, but they also offer financing options to customers in retail, healthcare and home improvement markets.
Importance of Fintech to Users
There are four different groups of fintech users: (1) B2B for banks and (2) their business clients, (3) B2C for small businesses, and (4) the consumers. Evolving technological trends that lead toward the use of mobile banking, increased dissemination of information and data, decentralization of access and a higher accuracy of analytics altogether shall create opportunities for all four groups to interact in many different and unprecedented ways.
In the world of business, before the arrival and implementation of fintech, a startup or business owner would normally go to a bank in order to secure financing or raise a startup capital. If they wanted to accept payments via credit card then they would have to build a partnership with a credit provider and also install infrastructure, such as a landline-linked card reader, but thanks to today’s mobile technology, such complications are now a thing of the past.
As for those belonging to the consumer group, it is understandable that the younger you are, then the more likely you know exactly and correctly explain what fintech means. The thing is, consumer-oriented fintech is hugely geared towards millenials given their huge number in today’s demographic as well as their increasing earning potential. Also, millenials prefer the convenience of doing everything at their fingertips rather than exerting unnecessary effort to go to a bank branch just to complete a financial transaction. Some fintech observers strongly believe that this focus on millenials is mainly because that they are the most numerous type of consumers in terms of size, and also it has something to do with the lesser interest and ability of the Gen Xers and Baby Boomers in using fintech in their daily living. Truth is, fintech is not very attractive for much older consumers because it fails to address their needs.
Summary
Fintech is a new industry that utilizes technological advancements to improve activities related to finance. Simply put, fintech ensures that all financial processes made are as convenient and simple as possible. It is universal, cheaper, and more secure than traditional banking. Fintech has been used to automate trading, loans, insurance, and risk management. The usage of smartphones for mobile banking, cryptocurrency and investing services are some examples of fintech aiming to make financial services more accessible for everyone.
Financial gurus expect that by the year 2025, an estimated 30% of traditional banking job positions will no longer be needed as a result of these disruptive fintech innovations.