What Is Fintech? A Guide To Financial Technology

What Is Fintech? A Guide To Financial Technology

by January 5, 2021

With its ever-growing trends and potentially transformative field, financial technology (fintech) has been attracting investors for quite some time now.

The broad variety of technological interventions in both personal and commercial finance provides diverse opportunities for individual investments, small startups, and big companies.

In case you find yourself needing some explanation and guidance in order to get you started in the world of fintech properly, keep reading.

What is Fintech?

Fintech is a rather broad term.



It primarily refers to businesses that use technology to automate and improve various financial services and processes.

Serving both individual consumers and companies, fintech has broad applications and it can include everything from mobile banking and insurance to cryptocurrency and investment apps.

Fintech is not, by any means a new industry, but it is constantly changing and evolving so it can catch up to rapidly made advances in modern technology. It has been a part of the financial business for decades now, adjusting and adapting its form along the way.

Mobile technology, as well as the internet, made everything instantly available with a click of a button. In that sense, it is not surprising that the demand for digitally accessible financial operations was on the rise.

The everyday use of technology made the fintech industry grow rapidly and dynamically, making it more relevant than ever before.

Various uses

Fintech has a different impact on various domains.

Here are just some areas (new and traditional) of the financial sector that are in some way connected to fintech.

Banks

Even traditional banks are actively supporting and investing in fintech.

In order to move forward as a relevant business, banks are partnering up with fintech startups, offering their customers a digital approach to finances.

Once the banks became such an important part of fintech it prompted a new type of banking with so-called neobanks.

Basically, neobanks are banks that have no physical location, they have a completely mobile and digital infrastructure. The rise of neobanks is undoubtedly instigated by the ever-growing demand for instant digital access to financial accounts.

Insurance

Unlike some of the other branches and partnerships of fintech, insurance is not adopting modern technology as quickly.

But, there are certainly innovations being made in this field too. From car to health insurance, traditional insurance companies are teaming up with fintech startups to improve and automate their services.

Insurtech is slowly but surely separating from fintech and becoming an industry on its own.

Payments

One of the strong points of fintech is its ability to move money around.

With the use of mobile payment apps, it has never been easier and faster to send or receive money anywhere in the world.

The accessibility of digital payments is, without a doubt, changing the way business is being done.

Lending options

There are a few aspects of lending options that can be improved with fintech:

  • speeding up the approval process
  • easier access
  • streamlining risk assessments
  • better transparency.

Not only can customers apply for loans anytime and anywhere on their mobile devices, but they are also able to request credit reports numerous times over the year.

Machine learning and trading

Machine learning is something that plays a crucial role in the fintech industry.

By gathering huge amounts of data and then running it through sophisticated algorithms, machine learning is capable of spotting trends and potential risks.

It goes without saying that the ability to predict the future trajectory of the market can definitely be a game-changer.

Savings and investments

In the pure numbers of savings and investment apps in the past few years, the fintech industry has made quite an impact.

Even though these apps all vary in their approach, it made the investment and savings options easier and more available to both companies and individuals.

Cryptocurrency and blockchain

The origin and development of cryptocurrency and blockchain can be tracked parallelly with that of fintech.

And even though both of these technologies don’t actually belong to the fintech domain, all three are certainly complementary applications. By working together, they are capable of changing and improving different financial services to a large degree.

Fintech top destinations in Europe

Two top European destinations for financial technology are London and Lithuania.

Even with the high costs, and time-consuming startups, London is the place to be when aspiring to expand further and achieve global reach in the fintech industry.

Due to Brexit, the accurate future of fintech in the UK is yet to be determined.

For now, London is still holding the first place as a city with a favorable ground for many fintech opportunities.

However, Lithuania is not far behind and it is quickly catching up to London.

With many benefits such as government support, advanced regulations, an infrastructure that promotes innovation, etc, Lithuania has created a fintech-friendly environment.

This country also has an additional advantage. Unlike London, the startup costs in Lithuania are fairly affordable.

That, together with unrestricted access to entire Europe, could shift the focus of the investors away from the UK, making Lithuania the top fintech destination.

Even during the COVID-19 epidemic in the past year, Lithuania’s financial sector is doing surprisingly well.

The importance of Fintech

According to research, there are three things in fintech that are highly valued by consumers:

  1. trust
  2. easy-to-use banking services
  3. accessible mobile apps.

In that sense, fintech is making different financial services more convenient and affordable to a larger number of consumers (from an average person to a big company).

The relevance of fintech has become even more clear recently, showing its potential in the last year.
It has especially demonstrated its resilience and importance during the COVID-19 epidemic when the accessibility to digital banking became not just a convenience but a necessity.

With a drastic increase in online activity, not only have a lot of sectors of fintech managed to survive but many of them successfully increased profit.

It is quite possible that the new reality established by the coronavirus epidemic determined the further development of the fintech industry.

 

Featured image credit: Pexels

 

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