What is Fintech (Financial Technology)?Fintech is a combination of “finance” and “technology.” Although it’s a blanket term that can mean many different things, it describes the evolution of an industry where new technology use-cases are developed and deployed to streamline more traditional-looking finance functions.While the general public typically associates fintech with really cutting-edge new concepts like blockchain and algorithmic trading, the term applies to a wide variety of much more “boring” applications. They include but are not limited to everyday banking, insurance, and other back-office risk management functions.Mobile banking – something that hundreds of millions of people worldwide take entirely for granted – is technology supporting the delivery of traditional banking services (aka fintech). Even your Starbucks app is a form of financial technology in that it facilitates payments and a proprietary rewards program using a mobile device.Understanding Financial TechnologyFintech is considered by many to be a relatively recent development, which is not entirely accurate. While it has evolved very quickly over the last decade, that’s mainly due to advancements in technology, more generally, which are now being applied to the finance sector.Financial institutions have sought to streamline service delivery and cut costs by using technology for many decades, including the advent of the first automated teller machine (ATM) as far back as the 1960s. Even credit cards, which predate ATMs, were a revolutionary technological advancement relative to cash and cheques in the payments space.The technologies that underpin fintech business models vary considerably. They include blockchain technology, artificial intelligence (AI), machine learning, and other significant data functions like robotic processing automation (RPA). Each use case is unique, but the underlying theme is a collective effort to disaggregate the financial services sector, which, historically, has enjoyed a highly protected status due to high levels of regulation.How are Fintechs Impacting Traditional Financial Services Firms?Traditional financial services providers (mainly banks and credit unions) serve three core functions:
- They hold money – including deposits and a variety of investment products.
- They lend money – including secured loans (like mortgages) and unsecured loans (like student lines of credit).
- They move money – everything from simple, everyday payments to international money transfers using global networks like SWIFT (Society for Worldwide Interbank Financial Telecommunications).
Evita Veigas
3 min read