Technologies surround us all the time. TV, desktops, smartphones, fitness trackers, various apps, voice chats, remote work environments – there are numerous examples of tech progress. When it comes to finances, we also even don’t think about innovations. Wherein, PayPal transfers and mobile deposits are also examples of high technologies combines with financial services. Put simply, that’s FinTech. Now, let’s explore this topic in detail.
In the first section, we want to talk about the basics. It provides general principles and concepts of the FinTech industry, technologies implemented in it, and prominent use cases. Most likely, you deal with FinTech regularly but don’t know about it. This part will help.
Definitions and Fundamentals
FinTech is an abbreviation for financial technology. This sector flourishes on the verge of finance and tech innovations. Initially, the term was used for back-end systems in large traditional banks. But now it includes many more meanings. Ultimately, a FinTech solution is any development for personal or business finance based on technologies – mainly, the Internet. Importantly, FinTech always focuses on a better user experience.
The tech basement of this industry changed over time, too. Back in the 1950s, when the first credit cards and ATMs were introduced, people haven’t used this term. But FinTech existed then because the banking industry used new technologies to provide better services.
Nowadays, the list of innovations is more impressive. Take a look:
- Artificial intelligence (AI). Smart machines do many things better than us. AI algorithms can process insanely large data sets, spot user patterns, predict habits, improve customer service. Definitely, you know about chatbots. They’re based on AI, too.
- Big Data. The mentioned AI tools process many data. We unite these large packages under the Big Data term. It helps financial institutions to understand clients better, research market trends, and deliver the needed products/services just on time.
- Although this technology is overhyped, its idea is simple. Blockchains are distributed ledgers that eliminate the need for central authorities, ensure immutable transactions, and improve privacy.
- Mobile technologies. Being one of the most familiar FinTech basements, mobile systems remain extremely useful. Banks that exist in your smartphone only, mobile payments, improved biometric verification – there are many uses for this tech.
- Robotic process automation (RPA). This technology is a part of the broader AI category. RPA is a simple artificial intelligence trained to handle repetitive tasks like data processing and reporting. RPA optimizes such processes, helps employees and clients.
Examples of Implementation
Generally, any software tool designed with the use of new technologies for finance falls into this category. A regular custom solution for banking industry can be FinTech, as well as highly-innovative blockchain things. We have a few more notable examples. They represent the most typical FinTech use cases, illustrate how things work in this sphere:
- The rise of neobanks – digital companies without branches – is linked to mobile technologies. Nevertheless, traditional banking corporations also integrate mobile apps and services that exist on par with classic options.
- Mobile applications, paired with AI predictions and suggestions, allow customers to plan their budgets better. Now, it’s easy to keep all profits, expenses, and investment options under one roof.
- Remember blockchain description in the previous section? Well, cryptocurrencies rely on this technology. Decentralized digital currencies protected from fraud are revolutionizing payment systems nowadays.
- To be honest, there’s one specific industry – InsurTech. But it still has a lot of FinTech best practices when it comes to payments. For instance, clients can pay premiums and get coverage much faster thanks to digital channels.
- This section is similar to budgeting. Lightweight and always-on investing applications are much more convenient than traditional physical brokerages. They also can provide valuable insights and savings tips.
- Apart from banking services like credits, deposits, or investments, FinTech changes the lending landscape. Thanks to personal apps, more people now can access personal loans, check credit scores, and even lend own money.
- Money transfers are arguably the most demanded services in the banking industry. Both large banks and innovative startups offer digital transfers now. Cryptocurrencies also facilitate international payments.
- If calm investments aren’t your style, FinTech solutions can help in trading, too. AI with machine learning capabilities improves these activities via 24/7 access to markets, trading suggestions, and efficient data analysis.
You also should know about another related industry called RegTech. It works on new regulatory standards and frameworks for innovative industries, including FinTech.
The State of FinTech in 2020
Due to the current coronavirus pandemic and the related global crisis, many businesses in nearly all industries face problems. The crisis disrupts supply chains, harms customer demand for various services, and even damages FinTech companies. The main problem is with relatively small brands and startups – they suffer because of the decrease in investments and revenue.
As for specific areas, BCG reports that trading, cross-border payments, and unsecured lending FinTech sectors will see the highest negative impact. Other forms of lending, investments, POS, neobanks, retail, and insurance firms will face big challenges, too. Security, risk management, compliance, and digital identity areas are the most protected now.
Simultaneously, big banks that implement FinTech solutions also have issues. Still, they have better chances to survive thanks to bigger customer bases and governmental support. While startups are closing regularly nowadays, traditional banks that invest in digital strategies are likely to benefit the most from the current situation.
Praising Financial Innovations
At the end of the day, the FinTech sector will survive, for sure. After the global recovery, existing companies will rise. New customer habits linked to digital-first interactions and online services will work in favor of FinTech solutions. It’s also essential that new technologies will progress, making all FinTech products/services more affordable and widespread.
If you’re interested in the topic, feel free to research on your own. There are many great FinTech online courses, books, and websites. You can start with checking the most successful FinTech startups – look at their offers, analyze how they attract clients, and try to predict their future development. It’s a useful exercise that can help with general market understanding.