What exactly is fintech?
The fintech industry is growing at a rapid rate and is showing no signs of slowing down. In fact, the global fintech market was valued at around $127.66 billion in 2018 and is expected to grow to $309.98 billion at an annual growth rate of 24.8% through 2022.
Everywhere you look, fintech innovations seem to be making an impact. But what exactly is ‘fintech’ and how is it impacting the world around us? Let’s take a closer look.
A simple definition of fintech
The term ‘fintech’ has been bandied around for several years now, often accompanied by long-winded and overcomplicated definitions. This can be confusing. But, it’s important to remember that ‘fintech’ simply stands for ‘financial technology.’
Essentially, technology is being increasingly integrated into the finance sector in order to improve the efficiency of services offered. The reason it has caused such a stir in recent years is that it has disrupted many ‘traditional’ financial services including banking. Thanks to fintech advancements, mobile payments, money transfers, loans, fundraising, trading, asset management and saving have all become a lot easier to navigate.
What’s more, fintech touches not just the financial services sector, but every business the financial services industry is involved with. And that’s huge news right there.
So fintech. What’s the big deal?
Fintech is alive and kicking. But why is it a big deal? Well, you might be surprised how fintech technologies have already integrated into your life. Maybe you already use such innovations. And perhaps take them for granted. So, let’s break down the fintech world further by looking at some real-life fintech applications.
Not so long ago, big ideas were funded by investors. Or, you’d get your credit score in check to apply for a traditional loan. These are still great ways to fund a lightbulb concept, but times have moved on. Nowadays, it’s really easy to raise money quickly and cheaply through crowdfunding. With crowdfunding, individuals or organisations invest in a project in return for a potential profit or reward. This can be done via crowdfunding platforms such as Kickstarter and GoFundMe which make it easy for internet and app users to send and receive money from others on the platform.
- Personal banking
Fintech innovations have drastically transformed the realm of personal banking. Firstly, most banks offer internet banking these days which provides real-time access to accounts. Indeed, as of Q4 2019, 73% of consumers said they’d used an internet banking service in the past month. Fintech is all about convenience with 59% of internet users who used online banking doing so via their mobile phone, 32% via their laptop and 7% via a tablet.
- Helping the unbanked
What’s also interesting about the personal banking fintech revolution is how it’s impacting those without a bank account. In today’s world, a staggering 1.7 billion adults remain unbanked. This might seem like a high number, but for those in poor countries or rural areas, stepping into a physical bank or accessing in ATM is incredibly difficult.
Financial technology is helping to bridge the gap through digital banking. Not only does this give people the chance to get or improve their credit score in order to secure loans and funds but it also helps consumers with business-based banking needs. M-Pesa is a mobile phone-based money transfer, financing and microfinancing service that helps people across Kenya and Tanzania send and store their money digitally and is another example of fintech changing the world as we know it.
- Money management
Mobile practicality and fintech go hand in hand which explains why there has been a huge surge of mobile-native disrupters in recent years. Money management apps such as Mint, for example allow users to budget and save on-the-go. With 30% of millennials using budgeting apps to keep track of their spending, it’s clear that fintech appeals to digital natives who have grown up with a deep mistrust of traditional banks post-recession.
As well as budgeting and setting saving goals via apps, fintech banking companies like Revolut offer mobile accounts in multiple currencies such as USD and EUR as well as fee-free exchanges and peer-to-peer payments. All with just a few clicks of a button. Want to pay or be paid for a service? Then let’s not also forget fintech operations like PayPal which save the need for depositing physical paper checks or invoices.
Top fact: Digital payments are, without a doubt, the main driving force of the fintech sector. With a 12.8% projected CAGR from 2019 to 2023, the total value of transactions is expected to reach $6.7 trillion by 2023.
Accessing large amounts of data and information anywhere and everywhere has become the norm. So much so that investors can adjust their portfolio or enter a trade while waiting for the bus. Charts, graphs and live market updates are available through mobile-friendly platforms. What’s more, algorithmic trading and robo-advising has also made it possible for traders to capitalise on even the smallest market movements with machine learning using large data sets to analyse trends, spot patterns and make split-second decisions.
- AI-enhanced trading
Without technology, investing and trading is a tedious process. But today, smart fintech solutions have led to intuitive trading platforms offering traders access to a wide arrange of tools. With AI trading technology rapidly feeding into the investment sector, the process of managing even a large portfolio has become a lot smoother. Technology has essentially streamlined investments and helped to eliminate human error. AI trading is also done at a much faster pace than manual trading. Wading through individual stocks tediously is no longer a requirement for those looking to invest.
Fintech has infiltrated many areas of our lives. The term ‘disruptive’ technology is gradually being phased out as even traditional financial services embraces the fintech evolution and begin to use services to their advantage. Fintech will continue to grow in the future with developments sure to be focussed not only on the back end of business development but also on consumer satisfaction. After all, consumers are getting used to this new age fintech wave.