What is Fintech and what are its benefits?

By 10 April 2022Blog
Benefits of fintech in 2022

Fintech is a portmanteau of “financial technology” defining an emerging financial services sector in the 21st century.

“Fintech” is used to describe any technological innovation in the financial sector, including innovations designed for the back end of established financial institutions and disruptive technologies developed by upstart companies or individuals. Fintech companies have been given credit for increasing competition in the finance industry, offering new opportunities for under-served markets such as small businesses and consumers with low credit scores, and spurring innovation through increased investment in IT.

How does Fintech differ from traditional banking?

One of the most noticeable differences between traditional and fintech is innovation. Traditional banking often doesn’t change quickly because these systems have been around for a long time. Contrast this to fintech, which embraces contemporary technologies like artificial intelligence and cloud computing to create new products and services.

In addition, fintech will make financial processes more efficient thanks to automation. Traditional banks tend to rely on manual human intervention in their processes—often involving multiple people—adding time and cost. Fintech companies can automate this process by using technology like machine learning (ML) or a Robo-advisor, improving efficiency.

Some may say that traditional banking is more secure than fintech options because they have been around longer and have proven successful over many years. However, many fintech companies are backed by the largest tech giants on earth (e.g., Stripe has investors including Elon Musk), which gives them access to the latest security procedures (and money).

What are the advantages of fintech?

Ultimately, fintech is about making your financial life easier and more convenient. And that’s not all it can do for you. There are many ways in which fintech benefits both consumers and businesses:

 Ultimately, fintech is about making your financial life easier and more convenient. And that’s not all it can do for you. There are many ways in which fintech benefits both consumers and businesses:

  • Ease of use and convenience: fintech makes it easier to pay your bills, set up direct deposit, initiate a bank transfer, or quickly find an answer to your question via chatbot technology—no more waiting on hold for hours!

  • Accessibility: fintech gives people who live in rural areas or have disabilities new options for financial transactions and services that weren’t available before.

  • Security: fintech provides additional security measures to protect people from fraudulent activity.

  • Savings: Fintech apps make it possible for users to save money by linking their credit card accounts with their bank accounts.

 

Three main categories of fintech

 

Fintech companies can be grouped into three categories: Providers of financial services, providers of infrastructure, and providers of technology. Financial services companies are those that directly facilitate transactions between buyers and sellers. These are traditional financial services but without the involvement of a bank. Some popular examples include PayPal, Venmo, SoFi, Betterment, and Robinhood.

  1. Infrastructure service providers offer platforms where buyers and sellers can connect to complete transactions on their own. Companies like AliPay, Apple Pay and Google Wallet provide payment processing services to allow merchants to accept digital payments in-store or online. Other infrastructure providers include those that provide loans or insurance such as LendingTree or Lemonade Insurance Company.

  2. Technology companies include those that are developing new technologies for all industry participants to use in order to improve customer experience for consumers and make operations more efficient for service providers such as Visa’s V.me digital wallet or Mastercard’s biometric authentication feature which allows customers to use fingerprint identification instead of entering a PIN code when checking out at the store or online (Souza et al., 2016).

 

Fintech Trends

Fintech is the most common term for describing any business that uses technology to improve financial services, such as mobile banking or digital wallets. There is a lot of investment in fintech at the moment, and startups are investing lots of time and money into finding new ways to make using finance easier, quicker, and cheaper. 

Blockchain

Fintech is the most common term for describing any business that uses technology to improve financial services, such as mobile banking or digital wallets. There is a lot of investment in fintech at the moment, and startups are investing lots of time and money into finding new ways to make using finance easier, quicker and cheaper.

One of the main reasons banks are investing so much in fintech is because they want to cut out the middleman (the bank) when it comes to certain payments. For example, instead of transferring money through a bank’s system, people can use their smartphone or their computer instead. This way they get some control back over their money – but also means that banks have less control over it too.

On top of this, new technologies like blockchain and artificial intelligence could completely change how we pay for things and how we manage our finances – so even more investment will be going into fintech companies in the coming years.

AI & Machine Learning

According to Forbes, the ‘infusion of artificial intelligence and machine learning’’ will be stronger than ever. Algorithms will be used to assess anything from credit applicant’s risk to predicting consumer behaviour in order to upgrade the customer journey and recommend valuable products to the consumer based on algorithms. AI will allow businesses to save time by handling daily tasks such as FAQs through chatbox, thus allowing more time for more mentally demanding tasks to the employees. The intertwining of AI with machine learning will allow businesses to offer better service to customers whilst improving employee productivity.

Conclusion

There is a lot of investment in fintech at the moment, and start-ups are investing lots of time and money into finding new ways to make using finance easier, quicker, and cheaper. One of the main reasons banks are investing so much in fintech is because they want to cut out the middleman (the bank) when it comes to certain payments. For example, instead of transferring money through a bank’s system, people can use their smartphone or their computer instead. This way they get some control back over their money – but also means that banks have less control over it too. On top of this, new technologies like blockchain and artificial intelligence could completely change how we pay for things and how we manage our finances – so even more investment will be going into fintech companies in the coming years.