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What is FinTech - why is it all the buzz right now?

What is FinTech - why is it all the buzz right now?

Yaser Ayub
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November 24, 2021
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5 min
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What is Fintech?

In recent years, financial technology companies have almost completely changed every aspect of the financial industry. As more and more services shift to new technological paradigms, such as using payment applications in mobile wallets instead of physical credit cards in physical wallets, fintech solutions are challenging today's traditional financial infrastructure. These types of modern innovations in the financial system are often referred to as financial technology.

Some examples of a Fintech service

Simply put, Fintech includes a variety of financial services and activities such as transferring money, depositing checks via mobile phone, applying for a credit card without physically going to the bank, raising funds for a business or a startup, managing your investments without human help. Generally speaking, Fintech describes any business that uses:

  • the Internet,
  • mobile devices,
  • software technology,
  • or cloud services to launch or connect to financial services.

A Fintech company is a company that combines technology (such as AI, blockchain, and data science) with traditional financial domains to make them secure, fast, and efficient.

Some of the most important fintech applications are mobile payments, automated investment applications (robo consultants which are online investment management services that use mathematical algorithms to provide financial advice with minimal human intervention) and machine learning. MO is one of the most widely used technologies in Fintech, offering the opportunity to play an even more important role in the financial sector as development continues.   

What it was and what it is now

Fintech originally referred to technologies applied to the back-end systems of banks or other financial institutions, but later expanded to cover many other more consumer-oriented applications. After the Internet revolution and the evolution of mobile devices and smartphones, financial technology has grown exponentially. Fintech, which originally referred to information technology used in the back office of banks or commercial companies, now describes a wide range of technological interventions in the areas of personal field and commercial financing. It now describes various financial transactions such as money transfers, depositing checks on your smartphone, bypassing a bank branch to apply for a loan, raising funds to start a business, or managing your investments - usually without assistance.

What drives the Fintech industry

Although the industry is reminiscent of startups and industry-changing technologies, traditional companies and banks are constantly adopting financial technology services for their own purposes. Fintech companies are at the intersection of financial services and technology, and are constantly changing currency businesses such as investment banking, wealth management, trading, and research. Fintech companies are opening up new opportunities by using a wide range of technologies (including machine learning, cloud computing, and blockchain systems) to provide innovative financial service products and solutions. Today's demand for faster financial production, coupled with new technologies and historically strong venture capital activities, has driven the demand for financial technology innovation and solutions. Companies such as Upstart, Venmo and PayPal are responding to the call and benefiting from it.

It’s a challenge for the traditional financial institutions

Start-ups are weakening existing companies in the financial sector by expanding access to financial services and using technology to reduce operating costs. As reputable financial institutions respond to the challenges posed by financial technology to their traditional dominance, more and more examples of the use of financial technology have emerged in the banking industry. On the other hand, Fintech enables traditional institutions to provide services beyond traditional banking, allowing them to directly compete with more mature fintech platforms. Facing the growing demand for digital transformation of the entire business structure, financial institutions are also rethinking their traditional processing methods and gradually adapting to a fintech solution provider that explains how they provide services.

There are a number of financial technology companies that specifically address the different needs of investors and banks, including

  • regulatory technology (regtech),
  • digital asset technology (cryptocurrency and blockchain),
  • crowdfunding platforms,
  • and insurance technology (insurtech)

These include companies such as Plaid, companies that transfer funds between banks, and companies such as Clair's services to increase wages for consumers.

The verdict - the good and not the bad

Looking at a study by CB Insights, whether it’s capital markets, insurance, digital banking, or money management, the Fintech 250 (the top 250 trading company list in 2020) all use technology to revolutionise financial services and rank among the most valuable, promising firms in the world. Fintech companies that combine software and technology to provide financial services will transform and improve finance by reducing costs and expanding access to financial services. The growth and opportunities of the financial technology market will mainly come from the strategic deployment of artificial intelligence, machine learning, natural language processing, advanced sensors and robotics, as well as the IT knowledge required to strategically manage and utilize huge financial service data sets. And, to a large extent, this is exactly the original intention of financial technology: to let consumers directly understand their financial life through easy-to-use technology. 

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