FinTech describes the technology fueling innovation in financial services. It promotes automation and drives more business online, giving consumers the power to control and manage their accounts.
Consumers and businesses likely use FinTech daily via automated financial transactions and other technological breakthroughs. We’ll explore how FinTech is modernizing and revolutionizing business and consumer financial resources.
What is FinTech?
FinTech is an abbreviation for “financial technology.” Initially, people saw FinTech as a techpreneur countercultural movement designed to upend traditional banking and lending’s heavy regulations and strong resistance to change. It referred to backend processes for setting up servers and software applications for the front end of traditional banking institutions. The goal was to make sending and receiving money easier.
It’s more challenging to define FinTech today because its meaning has expanded, and so has the financial technology available. What hasn’t changed is that FinTech uses technology to disrupt the traditional financial services sector.
In short, FinTech is a constantly evolving umbrella term for businesses that use technology to automate, change, or improve financial services for businesses and consumers alike.
Bottom Line: FinTech’s goal is to make financial transactions, including mobile payments, accessible and more transparent. It accomplishes this goal in diverse ways.
How is FinTech changing business?
Financial technology startups and established companies serve various audiences with myriad technologies and services. While FinTech benefits a broad spectrum of customers, its tech offerings prioritize two essential elements: accessibility and speed.
This is what FinTech brings to businesses:
- Fast access to powerful financial tools. FinTech is an equalizer, allowing businesses of all sizes and across all industries to access robust financial tools instantly. Using speedy, always-on internet connections, big data and mobile connectivity, businesses can easily access complex, feature-rich financial software suites and managed services. In the past, such setups would have cost millions of dollars in fees, equipment, licenses, trained technicians and dedicated IT teams.
- Unparalleled business insights. FinTech has created smart information displays with real-time updates and data analytics. With this information at their fingertips, business leaders gain unparalleled business insights. They can update their marketing on the fly to take advantage of favorable conditions or pivot to a new strategy.
- Customer accessibility and convenience. FinTech offerings help businesses bring new access to their customers. Businesses can provide customers with intuitive software interfaces, positive user experiences, fast internet bandwidth and more. Customers can access financial information and transactions in real-time on mobile devices or computers. These innovations have spurred omnichannel payments processing, mobile banking, peer-to-peer payments and even new ways of evaluating credit applications.
What industries are being disrupted by FinTech today?
Today’s FinTech players are revolutionizing industries like payment processing, wealth management, cryptocurrency, and more. Here’s a look at how businesses are using FinTech to fine-tune and bolster their offerings to better serve customers.
1. FinTech is revolutionizing payment processing.
Payment processing has long been a prime FinTech target. Consumers want transactions to be as straightforward as possible while maintaining the highest security standards. The best payment processing companies use cutting-edge financial technology to make transactions seamless and secure.
Here are some examples:
- Square. Square is arguably the most recognized FinTech company in the public eye. Square made mobile payments ubiquitous with its innovative smartphone card-swiper technology. Read our in-depth Square review to learn more about the financial technology behind the service.
- Stripe. Stripe is Apple’s official partner for mobile payments via Apple Pay. It’s also a leader in mobile-optimized and app-based checkout systems. Stripe’s technology meshes with Apple’s iOS-based biometric security and digital wallet tech, allowing millions of consumers to check out in various apps and mobile sites via Face ID or Touch ID on their phones. Stripe is also our choice for the best online payment processor; read our Stripe review to learn why.
- Payfirma. In 2011, Payfirma became the first company to bring mobile smartphone card reader technology to Canada. The company has since expanded into a global omnichannel merchant account services processor that helps businesses accept credit cards and debit cards online, in stores, and on mobile devices.
Did you know? Touchless processing, including mobile wallets like Apple Pay, became a popular FinTech advancement during the COVID-19 pandemic, when consumers began opting for contactless payments.
2. FinTech is disrupting alternative lending.
Alternative lending services provide novel approaches to personal loans, bringing lending options to more people with faster, easier application experiences than traditional financial institutions can provide.
Here are a few examples of FinTech-driven alternative lenders:
- Prosper. Launched in 2005, Prosper was the first peer-to-peer lending marketplace. It’s weathered many changes and industry regulations to grow into a well-regarded alternative lender.
- LendingClub. LendingClub launched in 2006, just after Prosper. LendingClub also began as a peer-to-peer lending marketplace and experienced many of the same trials and industry regulation challenges as Prosper. It is now the largest marketplace of its kind.
- Upstart. Upstart is a unique personal loan service founded by former Google employees. It considers your education and occupational history in addition to your credit score to provide a more accurate lending rate. Consequently, it extends lending opportunities to more people than traditional services do.
3. FinTech is making its mark on wealth management and automated investing services.
Automated investing services, also known as robo advisors, use machine learning algorithms and vast amounts of data to make investing easy and inexpensive, cutting out the costly human advisor element.
Here are two examples:
- Betterment. One of the first automated investment services, Betterment offers a website with an easy-to-follow, transparent process to help novice investors begin their wealth-building journey. Betterment features low fees and no account minimum.
- Wealthfront. Unlike Betterment, Wealthfront has a $500 minimum but charges no fees for the first $10,000 managed. It’s an attractive proposition for first-time investors.
4. FinTech is fueling cryptocurrency.
Many competing FinTech-driven cryptocurrency exchanges would gladly take your money, but these two services are among the most established. Their features that put them ahead of the crowd.
- Kraken. Kraken is a feature-rich crypto-trading marketplace that combines typical exchange features with forex-like trading and management. Kraken is also known for having some of the tightest security in the industry and is one of the few exchanges to run a “dark pool.” Kraken was the first Bitcoin exchange to have trading price and volume displayed on the Bloomberg Terminal and the first to pass a cryptographically verifiable proof-of-reserves audit.
- Coinbase. Called the PayPal of Bitcoin, Coinbase is a cryptocurrency exchange and a comprehensive digital wallet. Coinbase bills itself as the world’s most popular way to buy and sell Bitcoin. It exchanged more than $195 billion in crypto in 2020 alone.
The future of FinTech
Many investors wonder what the future holds for FinTech. Kalle Radage, COO of Neptune Digital Assets and former president of Payfirma, believes FinTech startups will continue exploring ways to make digital payments easier. “Frictionless payments and banking mean faster growth for businesses and better experiences for consumers,” he said.
Easy money transfer has inspired many FinTech startups, and it’s also a byproduct of FinTech innovation. For example, Bill Clerico founded the online payment service provider WePay as a way to reduce money-transfer friction among friends. And the immensely popular social payments app Venmo (and its business-focused Venmo for Business offering) illustrates how receptive people are to easy ways to transfer money.
Blockchain technology is another FinTech area expected to grow. Blockchain provides a decentralized, more transparent, more secure method of tracking the exchange of money and other assets – including supply chain items, vehicle titles and even diamonds.
Other FinTech sectors that will continue to grow include virtual banking and business transactions, more ways for businesses to connect directly with customers, and faster, more affordable financial services.
Kimberlee Leonard contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.