Only a few short years ago, the only access people had to their finances were in-person visits to a bank. Today, we control our accounts from apps, transfer money to friends and family via Venmo or one of its competitors, and are becoming increasingly accustomed to financial technology, or fintech.
Technology is completely changing the finance industry. It’s caught the attention of old-fashioned money managers, and it’s not something that anyone in finance should ignore.
Fintech is ever-present in 2020, and only shows signs of growing.
What is Fintech?
In short, it is any technology that improves and automates the delivery of financial services. It’s all about making it easier for consumers of all kinds to manage their finances digitally.
The term emerged early in the 21st century to describe technology on the back-end of financial institutions. Today, it has shifted to a much more consumer-oriented path, incorporating many different industries.
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Examples of different types of fintech include:
- Crowdfunding. Platforms that allow people (namely charities and entrepreneurs) to create digital campaigns to raise small contributions from many people. GoFundMe and Kickstarter are well-known examples.
- Mobile banking. Manage your bank accounts online. Major banks like Chase and Wells Fargo provide mobile banking as well as many smaller banks and credit unions now.
- Mobile payments. Transfer money without a bank account simply using an app on a mobile phone. Many mobile payments will convert currencies for less than a bank. Apple Pay is an example.
- Peer-to-peer lenders. Nonbank lenders that match borrowers with investors, equating to shorter approval times.
- Blockchain and Bitcoin. Blockchain is a free database that processes Bitcoin transactions. Bitcoin and other cryptocurrencies are part of this too.
- Robo-Advising. Many firms provide digital advising services using artificial intelligence. Big names like Vanguard offer Robo-advising which automatically adjusts clients’ portfolios based on the assigned risks and preferences.
- Stock-trading apps. Investors can buy and sell stocks with their mobile devices. Several inexpensive, low-minimum apps, like Acorns and Robinhood, make it easier than ever to invest from anywhere.
- Insurance. Technology is in the financial sector of insurance as well. Insurtech startups promise to cut the time it takes to buy life insurance down to a few minutes. This industry has come to include all types of insurance, like home insurance, car insurance, and data protection. CreditKArma is a largely successful example and was valued at $4 billion by Forbes in 2019.
- Budgeting apps. Now people can use financial apps to quickly and easily track income, expenses, and other budgeting information.
Who Uses This Stuff?
The truth is, we all do. If you have a budget app or use online banking, you use fintech. On a broader scale, fintech is used in B2B, B2C, and C2C settings. Businesses use technology to get financing, loans, and other financial services via mobile devices. B2B also uses cloud-based platforms to interact with financial data to improve their services.
There are many B2C and C2C uses for financial technology as well. Customers use cash apps like PayPal, Venmo, CashApp, and more to transfer money via a mobile device. Many consumers use budgeting apps, like Mint, to manage finances and track spending. In fact, several of the first big players in fintech were B2C applications for payment and lending.
The Biggest Financial Trends the Banking Industry Will Face
While some view fintech as a threat to the banking industry and traditional financial services, it actually provides an incredible opportunity. The financial companies that are able to incorporate new technology and leverage data will be able to give customers the experiences they want.
The future of banking and financial services face upcoming challenges and trends. Many of these themes can be addressed with fintech. The top transformation challenges that the future of banking face includes:
- Cost-efficiency. Digital-only financial services are incredibly low-cost, which means that traditional banks and credit unions will need to find ways to optimize their own costs. The key will be to replace the aging infrastructure and replace emerging technologies.
- Security and compliance. Customer data is a goldmine for financial institutions, but this means that advanced security must be a priority. Enhanced security and detailed insights will lower costs and gain customer trust.
- Adding new revenue streams. APIs and open banking allow for revenue growth and cost reduction. The banking ecosystem far exceeds the scope fo traditional banking services, and to keep up financial institutions will need to differentiate new products and monetization opportunities.
- Customer demands. Customer needs include digital engagements. Financial institutions must find ways to digitize the customer journey. Responding to customer needs with fintech allows you to increase satisfaction and reduce costs further.
Risk Management
Financial services are heavily regulated, which is why fintech is a major concern for many governments. Companies face several regulatory challenges and safety concerns with fintech. It is an even bigger challenge to develop a single, comprehensive approach to fintech risk management, but governments have customized existing regulations to fit the fintech landscape.
For financial institutions, risk management should be a concern, but it should not prevent the adoption of fintech. Pay special attention to regulations, compliance, and requirements to ensure your fintech solutions are secure.
The Trajectory of Fintech
Keeping up with the pace of fintech is critical for modern financial services companies. However, doing so is about more than chasing trends. To seamlessly integrate new fintech into your financial institution, you must adjust the processing, decision making, and overall structure of your company.
For customers, new financial services technology simplifies financial decisions. By leveraging machine learning and artificial intelligence, fintech learns the habits of users, which helps them make better spending decisions.
Another major factor of fintech is customer service. Chatbots and AI interfaces provide automated customer service, which helps increase customer satisfaction and save on staffing costs.
Many financial companies are also leveraging fintech to fight fraud. They use big data about payment information to flag suspicious transactions, which can save consumers a lot of money and hassle in the long-run.
As far as the future of fintech is concerned, there are even better days ahead. The future of fintech seems to lean on cooperation and collaboration or disruption. For those reasons, fintech in the future could be even more powerful and transformative. More and more capital continues to be invested in fintech companies, which is a strong indication that the future of fintech is promising.
Fintech will drive new business models, embedding itself in every part of the financial ecosystem. Layup Content will help your financial services company with its digital marketing strategy, especially as you enter fintech. We develop a comprehensive content marketing plan to help you attract and build customer relationships.
To learn more about our fintech content marketing services and how we can help your company, schedule your breakthrough call today here.