Fintech – Scientific Definition, Value, Types and Trends
What is Fintech?
The term is closely related to the term ‘‘financial innovation’’, defined as “the act of creating and then popularizing new financial instruments as well as new financial technologies, institutions and markets’’.
(Tufano 2003, p. 310)
FinTech (financial technology) is a collective term for finance-related softwares, mobile applications, and other technologies designed to enhance and automate traditional forms of finance for both companies and individuals. FinTech can encompass everything from simple mobile payment applications to complex blockchain networks with encrypted transactions.
History Of FinTech
As mentioned earlier, the term ”fintech” is an abbreviation of ”financial technology”. It was most likely invented in the early 1990s by Citicorp’s chairman John Reed in reference to the recently established ”Smart Card Forum”. PayPal was one of the earliest fintech companies to operate predominantly on the internet, founded in 1998.
This innovation in the financial industry reflects the development of a transformation driven by the IT sector. As a broad term, fintech incorporates innovative financial solutions facilitated by information technology.
Mobile devices, social networking sites, and data encryption have further revolutionized the FinTech industry. This revolution has led us to the widespread use of mobile payment applications, blockchain networks, and social media-based payment options.
What is considered fintech?
Any business that modifies, improves, or automates financial services for businesses or individuals using technology. Mobile banking, peer-to-peer payment services, automated wealth management, and trading platforms are a few examples of Fintech. It also applies to the creation and exchange of cryptocurrencies.
Fintech has grown and changed over the years in reaction to changes in the technology industry as a whole. In years 2016-2023, the rise is a result of a multitude of things:
Blockchain technology makes it possible to do transactions that don’t involve the authorities or any other third-party group. Blockchain technology and its uses have been growing quickly for years, and this is likely to continue as more businesses turn to advanced data encryption.
It is now easier than ever to use digital payments. Many people already use digital-first banks to handle their money, get and pay back loans, and buy insurance. This field is likely to grow even more because of the simplicity and ease of use it has. For the next 3 years, the global digital banking market’s expected annual growth rate is 11.5%.
Machine Learning & Ai
Ai(Artificial Intelligence) and ML(Machine Learning) technologies are interconnected with each other. These tech discoveries have changed the mechanism of how fintech companies scale and redefined the course of services they were offering.
ML and Ai have the potential to decrease expenses in several areas of business, boost customer service, and even spot signs of fraud. We can expect these technologies to play an ever-increasing role in the development of fintech as they become more widely available and affordable, particularly as more traditional banks make the transition to digital services.
How valuable is fintech innovation?
The past few years have seen a meteoric rise of interest in financial technology, highlighting the need for a more thorough appreciation of the importance of developments in this field.
FinTech innovations are beneficial to both the financial industry and the innovators who create them, according to a recent research by Mark A. Chen and colleagues. However, some forms of FinTech innovation can have an adverse impact on the worth of specific financial sectors. According to the research, disruptive technologies introduced by newer companies outside of the financial sector have a more negative impact on the value of an industry as a whole. Furthermore, market share leaders who have extensively invested in R&D are less likely to be negatively affected by disruptive innovation from competitors.
FinTech innovation is certain to decrease operating costs for many businesses and people across the financial services industry. However, it also facilitates increased mechanization in the financial sector.
Different Examples/Types of FinTech
Many companies are providing payment services for e-commerce, or, broadly, any activity comprising a digital transaction.
Klarna is a well-known fintech company based in Swedish, that features direct payments, payment-on-delivery options, payments for online shopping stores, and also works in installment plans. Klarna is a regulated bank that allows customers to purchase anything on a “buy it, pay later” matrix, with/on interest-free or very low-fee installment plans. In this manner, customers are able to pay for a product over time rather than all in a single transaction.
2. Stock Trading
Many of the FinTech apps facilitate digital stock trading, thereby reducing the conventional broker-client interaction to a readily accessible online exchange. Traditionally, it was noticed that most investment platforms charged high fees to their customers, despite the fact that executing trade transactions are not expensive. In response to that, the FinTech companies launched their fee-free trading platform, enabling smartphone users to trade stocks more conveniently.
Robinhood is an American fintech company headquartered in Menlo Park, California, that launched its mobile app in March 2015 to provide the no- commission trading of stocks, cryptocurrencies, and individual savings accounts.
3. P2P Payments
A peer-to-peer (P2P) payment service enables its users to make transactions rapidly via direct digital file sharing.
Venmo is an American mobile payment platform (FinTech App) founded in 2009, has been owned by PayPal since 2013, was designed for family and friends who desire to share their expenses/transactions, such as for movies, dinner, rent, or event tickets. Venmo is a fast, secure and a social way to pay and get paid.
4. Wealth Management
Wealth Management is another type of a fintech platform that helps its users to invest their money and provides financial consultancy based on their end goals.
Robo-advisors is a FinTech app that provides financial planning services through automated algorithmic processes without human intervention. They start by collecting data from the customer via an online survey, and then invest consequently based on this information. Robo-advisors employ passive index investment strategies.
5. Business Payments
A payment service for businesses that enables credit card acceptance via smartphone, tablet, or computer. Due to high fees and expensive gadgets, credit cards were difficult for small businesses. This Fintech category provides businesses with an easy-to-use method for accepting payments, printing receipts, and offering virtual gift vouchers to customers.
Square is a well-known business payments platform/instrument that can be used for routine business tasks.