Science fiction writer Arthur C. Clarke once wrote that “any sufficiently advanced technology is indistinguishable from magic.” He couldn’t have been more right. You can transfer money to friends’ or family members’ accounts, and they could receive it almost instantaneously. Investing is doable with a few finger taps. Grocery shopping is more convenient with a self-service cash register. All these sound like magic and maybe even unimaginable to most people before the Internet’s emergence, circa 1980s.
These transactions are made possible with advancements in financial technology or fintech. Fintech remains an emerging market that is expected to be worth US$30 billion by 2022. But as you will learn from this post, the technology is already making waves in different areas.
- What Is Fintech?
- What Are Some Examples of Fintech?
- What Do Fintech Companies Do?
- Do Fintech Companies Compete with Banks?
What Is Fintech?
Fintech is a blended term that refers to financial technology, a sector that includes any tech used in the financial services industry. Among the first things that come to mind are online payment systems like PayPal, Apple Pay, Transferwise, and Payoneer. But fintech has far broader applications.
What Are Some Examples of Fintech?
To better understand what fintech is, here are some examples that you most likely heard of or used before:
Blockchain and Cryptocurrency
Blockchain and cryptocurrency are among the most controversial applications of fintech, as they were among the first to show how technology advancements can alter a sector. Investment companies, banks, and tech companies have started looking into cryptocurrency, with Facebook even creating its own digital currency, Libra. Fintech is also behind the use of blockchain for fraud prevention.
Online and Mobile Payment Systems
Fintech has disrupted the way people pay for products and services by allowing them to conduct transactions via computers and mobile devices. In 2019, approximately 950 million global mobile payment transaction users were recorded, a number that is predicted to grow to 1.31 billion by 2023, according to Statista. The growth is fueled by underbanked sectors in several countries in Asia, Latin America, and Africa.
Budgeting apps like Mint, Good Budget, and Personal Capital are also considered part of the fintech sector. These apps help users, particularly consumers, keep track of their expenditures and incomes, allowing them to control their finances.
Before the emergence of crowdfunding platforms, startups needed to go to banks to secure loans. With companies like GoFundMe and Kickstarter, however, businesses can now gather funds from different investors within one platform.
Individuals can also use the same platforms to help them gather funds for various purposes like paying hospital bills, traveling, and soliciting for charitable activities.
Investment and Trading Platforms
Thanks to fintech, stock market investors no longer need to transact directly with a stock exchange to buy or sell stocks. With the rise of stock-trading apps, investors can conduct transactions even on their mobile devices. Some trading apps have also been developed to cater to investors with lower budgets.
Fintech has also revolutionized the way asset management companies work. They can now provide algorithm-based portfolio management services with the help of robo advisors.
What Do Fintech Companies Do?
In a nutshell, fintech companies make financial services more accessible to the greater public. These services include traditional financial transactions like saving, investing, and loan processing. But it also encompasses revolutionary financial technologies like blockchain and cryptocurrency.
With one-third of adults who still don’t use banks or similar financial institutions, fintech companies still have a long way to go.
Do Fintech Companies Compete with Banks?
One could argue that fintech companies compete with banks. While this narrative is true in some aspects, the fact is that banks are also investing in fintech companies. U.S. banks, for instance, have invested US$3.6 billion in 56 fintech startups in 2017.
JPMorgan Chase, for one, invests US$11 billion each year on its internal team of technology researchers and developers—a group comprising 50,000 people. The company also partnered with various fintech startups worth US$600 million.
Like other types of technological innovation, fintech has radically changed the way consumers manage their finances. In response, financial institutions like banks and investment companies are investing in fintech applications, with some allocating vast portions of their budgets for research and development.