Financial Technology

Financial technology (better known as fintech) is used to describe new technology that seeks to improve and automate the delivery and use of financial services. At its core, fintech is utilized to help companies, business owners, and consumers better manage their financial operations, processes, and lives. It is composed of specialized software and algorithms that are used on computers and smartphones. Fintech, the word, is a shortened combination of “financial technology.”

When fintech emerged in the 21st century, the term was initially applied to the technology employed at the backend systems of established financial institutions, such as banks. From 2018 or so to 2022, there was a shift to consumer-oriented services. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management, to name a few. Fintech also includes the development and use of cryptocurrencies, such as Bitcoin. While that segment of fintech may see the most headlines, the big money still lies in the traditional global banking industry and its multitrillion-dollar market capitalisation.

Broadly, the term “financial technology” can apply to any innovation in how people transact business, from the invention of digital money to double-entry bookkeeping. Since the internet revolution, financial technology has grown explosively.

You likely use some element of fintech on a daily basis. Some examples include transferring money from your debit account to your checking account via your iPhone, sending money to a friend through Venmo, or managing investments through an online broker. According to EY’s 2019 Global FinTech Adoption Index, two-thirds of consumers utilize at least two or more fintech services, and those consumers are increasingly aware of fintech as a part of their daily lives.

The most talked-about (and most funded) fintech startups share the same characteristic: They are designed to challenge, and eventually take over, traditional financial services providers by being more nimble, serving an underserved segment of the population, or providing faster or better service.

For example, financial company Affirm seeks to cut credit card companies out of the online shopping process by offering a way for consumers to secure immediate, short-term loans for purchases. While rates can be high, Affirm claims to offer a way for consumers with poor or no credit a way to secure credit and build their credit history.

Similarly, Better Mortgage seeks to streamline the home mortgage process with a digital-only offering that can reward users with a verified pre-approval letter within 24 hours of applying. GreenSky seeks to link home improvement borrowers with banks by helping consumers avoid lenders and save on interest by offering zero-interest promotional periods.

For consumers with poor or no credit, Tala offers consumers in the developing world microloans by doing a deep data dig on their smartphones for their transaction history and seemingly unrelated things, such as what mobile games they play. Tala seeks to give such consumers better options than local banks, unregulated lenders, and other microfinance institutions.

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