“You have to serve these markets, re-imagine how money can be managed and moved because there’s going to be more change in the next five years in financial services that happened in the past 30.” – Dan Schulman “President and CEO of PayPal”
What exactly is “FinTech”?
With the advent of FinTech in the 21st Century, the term, effectively, was deployed to the back-end systems but with time there has been a huge tilt to more consumer-oriented services and corresponding modification in the definition.
In essence, FinTech acts as a resource to help companies, consumers and business owners to manage their financial processes and operations by deploying the softwares and algorithms used on computers and, growingly, smartphones.
FinTech has now expanded to include the technological innovation in the financial sector and its automation including breakthroughs in financial literacy, smoothening of wealth management, as well as advice and education, fundraising, money transfers and payments, retail banking, and much more.
To make it all simple for you, the term FinTech can be used for any breakthrough in way businesses transact from the advent of digital money to making your payments with a tap. With the mobile internet revolution and smartphones dictating the way we communicate, financial technology has seen a huge quantum leap, which was once just referred to as a technology running at the back-end, now adds a plethora of technological advancements in the way we define finance.
Financial Technology now grows to admit a conglomerate of financial activities viz. money transfers, paying out a check, apply for credit without bank branch intervention, raising funds for your business and all that without minimum or no requirement of man force.
“FinTech” in Action!
The most revered FinTech startups have at least one characteristic in common: they are all deployed as big dragons acting as a threat to traditional financial services providers by being more agile and designed to serve the untapped segment of customer by providing them faster services.
For instance, one of the startups attempts wipe credit card companies out of the payments process by providing a secure and prompt way for the customers to avail short-term credits for shopping. While the same startup, despite the high rates, also claims to offer a way for consumers with low or no credit to secure credit and build a credit history.
On the other hand, another startup attempts to tie home borrowers with banks by saving customers from established lenders and save interest cost by offering zero-interest promotional period.
Essentially, if you ever had or thought of unpleasant experiences in your financial life ( say, mortgage application) or felt it is not conducive, FinTech, in all possibility, has a solution or seeking one for you.
FinTech collaborating with advanced technology
All the cumbersome and erratic guesswork will be eliminated out of financial decisions with the help of advanced technologies like machine learning, artificial intelligence, predictive behavioral analytics and data-driven marketing. The future is going to be pretty spooky relative to the current scenario.
The “learning” apps are not only going to know the habits of users which were hidden to them, but they will engage users in learning activities to rectify their spending and saving practices. Machine learning comes with clever ways of programming a computer which when combined with optimized hardware can significantly improve performance.
FinTech can beautifully adapt to automated customer service technology, utilizing AI interfaces and chatbots to assist customers with basic task thereby reducing the staffing cost. Moreover, FinTech is also being utilized to fight fraud by putting to use the information about payment history to highlight transactions that do not comply with the norms.
Current FinTech Scenario
The highest number of the FinTech startups produced is in North America, with Asia being a close second. New avenues were opened in the first quarter of 2018 after Global FinTech funding hit a new height let including a significant enhancement in deals in North America. Asia experienced a spike in the activity which could surpass the United States in FinTech deals. The most active areas of FinTech innovation deal with some of the following areas:
- Block Chain Technology, including Ethereum, which maintains records on the network of computers but has no central ledger.
- Cybersecurity, snowballing of cybercrime and the decentralized storage of data
- Utilization of algorithms to automate investment advice to lower cost and enhance accessibility by Robo-advisors
- Utilizing computer programs which in turn utilize the blockchain to execute contracts between buyers and sellers like Smart contracts
- A concept called “open banking” that is also based on the blockchain and propounds that bank data should be accessible to third-parties in order to build applications for creating a connected network of financial institutions and third-party providers.
Who uses “FinTech”
Broadly speaking, there are four categories: B2B for banks, their clients, B2C for small businesses and consumers. The shifting of environment towards mobile banking, increased information, accurate analytics and decentralization of access will generate more opportunity for all the groups to communicate in revolutionized ways.
Like it is the case with most of the technology, the younger you are the more you will be well aware of or are likely to be about fintech. The key reason for this is the very fact that it is targeted towards millennials since the size of the segment is really huge and the earning potential of the segment is immense.