What is Fintech? What is its Future?
Remember the last time you went to dinner and you and your friends split the bill using Venmo or Google Pay? Or you paid for your beverages using Apple Pay? Or that time when you paid for your Uber ride with your mobile wallet? You may not have realised but fintech has become an essential part of your as well as other people’s lives.
But what exactly is fintech? Which services come under its umbrella? Let’s find out.
What Is Fintech?
Fintech or financial technology is a term used for any new technology that seeks to improve, streamline, digitize, and automate the delivery and use of financial services. With the help of fintech, companies, business owners and consumers can manage their financial operations, and processes in a better way by utilizing specialized software, algorithms, and applications that are used on computers and smartphones.
Fintech platforms make performing run-of-the-mill tasks like depositing checks, paying bills, or moving money among accounts much easier. They also encompass technically intricate concepts like peer-to-peer lending, the development of crypto-currencies and crypto exchanges.
Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management to name a few.
Use of Fintech
In the 21st Century, when fintech emerged, it was initially applied to the technology employed at the back-end systems of established banks and financial institutions. Since then, however, a shift to more consumer-oriented services has been seen. Today, banks as well as financial institutions use fintech for both back-end processes and consumer-facing solutions. On the back end, it is used for monitoring account activity while on front end, the customers use it for checking balance. Fintech is used by individuals for everything, including tax calculations, contactless payments, and market research. On the other hand, businesses use Fintech for the following:
- Payment processing
- Ecommerce transactions
- Getting assistance with Payroll Protection Program (PPP)
Evolution of Fintech
The term Fintech has started just recently but it does not mean that it is new. The phrase was first added to Merriam-Webster’s dictionary just a few years back in 2018. However, it has been around for decades. ATMs were, in fact, at one point, the most innovative fintech innovation. Signature-verifying technologies that were first introduced by banks in the 1860s were another fintech innovation.
Today, fintech has evolved from being associated only with startups to being a significant part of established financial institutions. It has proven its worth in the face of the coronavirus pandemic. It was because of fintech only that credit unions and banks across the world were able to transact and offer COVID-19 support and services digitally. People were able to avoid long wait times for phone service by using their bank’s mobile apps or visiting their site online.
What Does Fintech Mean for You?
Though the financial services sector is not generally associated with agility, however, today’s consumers and business owners demand adaptability and rapid iteration, as well as instant gratification. Fintech speeds up processes that once used to take days, weeks, or even months. For example, you can request a credit report, or send an international money transfer sooner now. These tasks are completed in fractions of the time by platforms like Upstart or TransferWise.
Also, fintech has the potential to increase financial inclusion as it can fill the needs of the unbanked in certain parts of the globe, where there is no governmental support.
Fintech’s ability to simplify complex processes that were once tedious is partly due to its reliance on ones and zeroes versus human skills, and opinions. Many fintech platforms combine elements of traditional brokers/advisors with algorithms. While others help users navigate complex financial tasks without having to interact with any real-life human.
Today you can apply for loans and mortgages online and bypass the traditional banking process. For casual investors, there is no longer the need to meet with financial professionals face-to-face to discuss the details of their portfolios. They can browse their options online or even use chatbots to help them make decisions.
Many fintechs are also mobilizing to help customers navigate the financial chaos caused by the pandemic. Some fintech companies are providing financial assistance and have established aid programs for those in need.
The answer to the question of what fintech means for you depends on each individual case. Other than tasks that have become a part of day-to-day life, such as online account monitoring, fintech’s impact on your life will depend on how many services you use.
Future of Fintech
Nobody knows what new fintech innovations will be on the horizon. This uncertainty is made worse by the pandemic. The early 2020 projections that the sector would continue to expand in 2020 were only partly accurate. Deloitte points out that industry expectations about the future of fintech have been rewritten by the coronavirus-induced economic rollercoaster and interest rate cuts.
Fintechs have experienced financial setbacks just like their customers. Some have had to downsize, or lay off employees, while others struggle to secure investor financing amid hasty transitions into virtual meetings with VCs. However, fintech is in high demand. Both banks and businesses are increasingly turning to technology to manage their finances.
It is expected that an economic recovery will be accompanied by new opportunities for fintechs. This is especially true for businesses that are more open to digital financial services and ecommerce simply because they need them.
The long-term and larger trends that will shape the future of fintech are still relatively stable. It is likely that legacy banks and fintechs will continue to collaborate and consolidate, as well as form partnerships. Consumers can expect to continue to see companies promoting services such as blockchain, cryptocurrency and peer-to–peer transactions.
The bottom line is that fintech is a significant player in the global economy, modern society and business landscape. This field is rapidly expanding and appears to be here to stay.
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