What is FinTech?

In recent times, the term FinTech has been bandied about almost daily. You read about how FinTech is disrupting the traditional banking and business sectors, and you may even have read about cryptocurrencies. So, what exactly is FinTech?

Generally, Financial Technology (or the snazzy FinTech for short) is where technology is applied in financial services or even in software that helps companies manage the financial aspects of their businesses and processes. However, with the Internet, mobile services, and cloud services FinTech has grown explosively and many tech start-ups are providing cutting-edge services that’s set to provide consumers and businesses alike an integrated platform to do many financial transactions that were not possible previously or were too costly.

These start-up companies compete directly with traditional banking and financial institutions, and in many respects have taken them by surprise. FinTech companies operate in dozens of countries, and are slowly chipping away at pieces of the financial services industry, providing products and services, once exclusively available through financial institutions. These products and services are within the categories of lending, personal finance, retail and institutional investments, equity financing, consumer banking, and several others.

One example that can illustrate this is when you pay for an online purchase, you as the consumer can make the payment directly on the website while the various parties like the website, payment portal, and banks communicate in the background.

In today’s digital age, and with significant demographic shifts in the population, people are seeking easy access, convenience, efficiency, and speed. People want to conduct transactions via mobile technology platforms and applications, and such activities include managing their financial lives, whether that is tracking their overall spending, applying for a loan or paying for stuff.

For traditional financial services companies (including banks, insurers and wealth and asset management companies), the risk of disruption is real, as FinTech companies invade their space.

How FinTech can be disruptive

• The growth of online shopping, which is expanding quickly at the expense of in-person shopping, leading to the dominance of online, cashless solutions for transactions.
• A shifting balance of power that swings from banks and other financial services to those who own the customer experience. Banks are eliminating in-person services and looking to FinTech and large technology companies for other ways to engage customers.
• New trading platforms that are collecting data to create an aggregated market view and using analytics to uncover trends.
• Insurance products, which are becoming more tailored to customers who, in turn, are demanding coverage for specific locations, uses and timeframes. That’s driving insurers to collect and analyze additional data about their clients.
• Artificial intelligence, which now plays a role in differentiating financial services products as it replaces complex human activities.
• Transaction process improvement and middleware, both of which remain expensive. This is pushing traditional financial services firms to consider partnerships with marketplace lenders for FinTech solutions that don’t require a full infrastructure overhaul.

As with most disruptive technologies, businesses have to empower their management with the necessary skills and adopt it or risk being left behind by the competition. In today’s business environment, change is definitely a necessity and not a choice.

As 2018 rolls along, expect to see even more revolutionary FinTech services that will hit the market and see consumers adopting them very quickly as data analytics takes the ‘guesswork’ out of what consumers really want in their daily lives.