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Understanding Financial Technology (Fintech) and Its Impact on Our Lives

Louise Villalobos

ByLouise Villalobos

Feb 28, 2024
Understanding Financial Technology (Fintech) and Its Impact on Our Lives

The financial sector has seen significant developments over the years. Among them is financial technology (Fintech), which aims to improve the delivery of financial services. Fintech is adopted by companies to help them manage their finance-related operations better. Keep reading this article to learn more about financial technology.

Understanding Financial Technology (Fintech)

Financial technology has witnessed massive growth in recent years thanks to easy access to the internet. With several innovations made possible by Fintech, it is likely that you have used the technology at some point. For example, if you use your mobile phone to send money to your family or friends via apps like PayPal and Venmo, then you are part of the Fintech ecosystem.

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According to the Global Fintech Adoption Index, most people utilize at least three Fintech services on a daily basis.

Fintech in Practice

Most Fintech companies have a common goal: “to challenge traditional financial service providers by serving the underserved.” For instance, financial firm Affirm intends to challenge credit card companies in the online shopping space by providing a way for customers to secure quick and short-term loans to pay for purchases. Although the interest rate charged by Affirm can be high, the company claims to offer its loans to consumers with no or poor credit to allow them to build a good credit history.

Moreover, a fintech company for home loans, Better Mortgage, looks to make the process of securing a mortgage easy. The firm usually pre-approves customers for mortgages within 24 hours. Similarly, Tala provides people in developing countries with microloans by simply taking a look at their transaction history on their smartphones.

Financial Technology’s Expanding Horizons

With Fintech companies embracing technology to offer their financial services, they have become more efficient and have been able to cut transactional costs. For example, Robinhood, a mobile-only app for trading stocks, charges zero fees on trades. Moreover, Fintech has made it easy for companies to secure capital. For instance, Oscar, a fast-rising online insurance firm, received $160 million in 2018 from online funding platform Funding Circle.

The power of Fintech has pushed numerous traditional institutions to set aside billions of dollars to integrate the technology into their operations. For instance, popular investment bank Goldman Sachs has adopted Fintech to launch Marcus, a consumer lending platform.

Fintech and New Technologies

A new technology like artificial intelligence (AI) is likely to take the guesswork out of the financial decision-making process. Fintech platforms use such technology to help users make informed financial decisions. Moreover, by adopting AI, fintech firms are able to keep their staffing costs low.

Fintech Landscape

As mentioned earlier, Fintech has seen massive growth since its emergence in the mid-2010s. Startups in this space have received billions of dollars in funding. Most of these startups are based in North America.

Fintech innovation revolves around these areas:

Cryptocurrencies: These are digital currencies that run on blockchain technology. They have made international transactions quick and cheap.

Open banking: This concept advocates for people to access bank data to create apps that connect financial institutions with third-party providers.

Insurtech: This technology seeks to improve the insurance sector.

Regtech: This technology is designed to help financial service providers comply with industry rules, especially the Know Your Customer and Anti-Money Laundering policies.

Robo-advisors: Investment firms that use this technology utilize algorithms to offer customers investment advice at low cost.

Fintech and Regulations

As Fintech continues to grow in popularity, financial regulators across the world are coming up with ways to regulate the nascent industry. The United States Department of Treasury wants American financial regulators to adopt measures that protect consumers from risks associated with Fintech. Meanwhile, some countries find no need for new rules. Instead, regulations that apply to traditional financial service providers are being imposed on fintech firms.

How Do Fintech Firms Make Money?

There are several ways that Fintech companies generate revenue. For example, a loan provider can make money from interest, and an investment platform can generate income from collecting brokerage fees.

Louise Villalobos

Louise Villalobos

Louise Villalobos is an adept writer, renowned for her compelling articles that illuminate and engage. Her prowess in breaking down intricate subjects provides readers with clarity and nuance. With a vast and varied portfolio, Louise has solidified her standing as a distinguished voice in contemporary journalism.