What is FinTech? The FinTech Industry Explained
What is FinTech?
To put the definition as simply as possible, financial technology (FinTech) is a term that refers to a range of innovations within the crossover space of the financial and technology worlds. It’s typically used to refer to companies or businesses that use specialized technology to provide a range of financial services to other companies, consumers, or both.
Over the past several years, FinTech has been used for many of the newest and most convenient technological innovations. It involves a vast array of developments ranging from cryptocurrency to typical mobile payment applications like PayPal. In short, FinTech can be used to describe any company or business that provides financial services through specialized technology and software.
More broadly speaking, FinTech also describes any company that uses the internet, software technology or cloud services, and mobile devices to provide consumers (or other businesses) with access to easy-to-use financial services. In doing so, FinTech has completely revolutionized how people and corporations can interact with finances while also disrupting the operations of more traditional financial industries, such as banks.
Though this has led to many convenient, time-saving innovations for corporations and consumers alike, it has also created a potential threat to brick-and-mortar banks and other older financial institutions. However, for the estimated two billion unbanked citizens worldwide, the direct access to and control of their financial lives that FinTech provides through easy-to-use technology is a massive boon. Thanks to FinTech, the overall financial inclusion of unbanked individuals has been significantly expanded, while operational costs of financial institutions have been reduced.
Today, FinTech encompasses a massive range of consumer-focused services that allow people to shop, pay for food, buy stocks, and access their checking and savings accounts. People can also manage their insurance much more directly through their smartphones and other standard pieces of technology through these FinTech services.
The various tools that FinTech has been responsible for developing have actively changed how people track, manage and interact with their finances. In 2016, as many as one in three mobile applications provided users with ways to manage their finances. This number has seen significant increases since that data was collected five years ago, especially since more and more corporations have chosen to invest directly in FinTech advancements and development.
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FinTech Examples You Should Know About
FinTech programs and capabilities have expanded massively over the past two decades, leading to a surprising number of changes and advancements in the realms of numerous industries. Below are some of the most common examples of how FinTech is being used as of 2021. While some of them involve the more traditional uses that came along with the initial development of FinTech software capabilities, many represent more recent developments in the ways that FinTech has rapidly expanded the amount of access and control people have regarding their finances.
In this day and age, one of the most commonly used elements of FinTech is mobile payments, which can quickly be conducted through countless mobile and online applications with the simple push of a few buttons. PayPal, for example, was one of the world’s first FinTech companies to be established, and its success over the years has caused it to become a globally recognized financial empire.
Other top FinTech payment companies include Venmo, Stripe, Ripple, DailyPay, Circle, Affirm, Affinipay, Bigcommerce, and several more. The use of this mobile payment technology has become so immense that, according to data collected in one report by Allied Market Research, the global mobile payment market size was last valued at $1.48 trillion as of 2019. Given that the compound annual growth rate (CAGR) of this value has been recently recorded at 30.1%, it is projected to grow to approximately $12.06 trillion by 2027.
Cryptocurrency & Blockchain Technology
Blockchain technology and cryptocurrency have become hallmark examples of FinTech software in action over several years as virtual currencies like Bitcoin, Ethereum, XRP, and countless others have come onto the scene. FinTech software has been instrumental in developing several cryptocurrency exchanges, where these currencies (along with numerous others) are continuously bought, sold, and exchanged across the globe, every day of the year. Not only did FinTech allow for the creation of these crypto exchanges and blockchain services, but it also facilitates other blockchain services.
One such service includes BlockVarify, which is utilized to help keep provenance data secured within the blockchain and help reduce instances of fraud within the cryptocurrency market. However, it’s important to note that blockchain and cryptocurrency constitute a relatively controversial use of FinTech. However, the controversy has not stopped the realms of blockchain and cryptocurrency from taking the investment world by storm in more recent years.
Robo-Advising & Stock-Trading Apps
Throughout most of investment history, investors would go through brokers and industry specialists to help them find, select, and purchase the best investments to include in their portfolios. However, in the current day and age, robo-advising through FinTech software has essentially upended traditional elements of and the overall need for services within the asset management sector. This upending is due to the range of advanced, algorithm-based portfolio management and asset recommendation tools that have increased the effectiveness and efficiency of investment strategies while significantly lowering the costs it once took to develop said strategies.
Fewer and fewer investors are relying on the skills of human investment brokers. Instead, they are turning to the advanced technology that can analyze a massive range of portfolio options every hour of the day, seven days a week, to provide them with the most profitable investment portfolio options. Even traditional financial institutions like Charles Schwab (SCHW) and Vanguard have also begun adapting to offer these online robo-investing services.
However, perhaps even more significant than the adoption of specialized robo-advising software within the FinTech space was the development of technical stock-trading mobile applications. Not long ago, investors wanting to buy, sell or exchange their investments would have to go directly to a stock market exchange, such as the Nasdaq or New York Stock Exchange (NYSE).
However, thanks to the development of FinTech, investors can now buy and sell stocks directly from their mobile devices without having to engage with any stock exchange directly. There are now many inexpensive, easy-to-use apps like Acorns and Robinhood, which make the investing process more streightforward than it has ever been.
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Aside from mobile payments, cryptocurrency, and stock-trading applications, one of the most common uses of FinTech over the last few years has come in the form of detailed consumer-based budgeting apps, which have recently seen a substantial surge in popularity and usage. Before the age of FinTech and advanced technology in general, people had to keep close track of their finances and develop their budgets by keeping track of their checks and navigating tedious excel spreadsheets.
However, the FinTech revolution has had a miraculous effect on spurring the development of various financial services apps that consumers can use to keep track of their expenses and income while creating an effective and easy way to manage a budgeting plan.
Crowdfunding platforms and companies, such as Patreon, Kickstarter, and GoFundMe, all serve as fantastic examples of the range of services FinTech can provide to people outside of the traditional banking industry. These platforms allow mobile app and internet users to send and receive money from others without relying on loans or other types of everyday transactions facilitated by banks.
They also allow businesses and individuals to pool significant amounts of funding together into a single space from a wide variety of sources. Back in 2000, ArtestShare became the first dedicated crowdfunding platform and a key contributor to the future development of FinTech businesses and services. Since then, several new platforms have come into creation, allowing family, friends, and fans to financially fund others through fast and easy online or app-based financial transactions.
Another industry that FinTech advancements have significantly impacted over the past several years includes insurance. Cleverly referred to as insurtech, the intersection of financial technology and the insurance industry has permeated all levels of the insurance world, including home insurance, auto insurance, health insurance, life insurance, and even insurance for data protection. For the past several years, insurtech company startups have begun attracting massive amounts of funding. For example, according to CNBC, the insurance startup Oscar Health secured as much as $165 million at a $3.2 billion valuation in March of 2018.
Additionally, as of 2020, Forbes has decided to institute an entire insurance category to its FinTech 50 list in response to the massive leaps made by digital insurance carriers making use of specialized FinTech software to bring forth the next generation of virtual insurance brokers. Are you curious about how the stock market and cryptocurrency investing can help you improve your future financial prospects? Take a look at the top-quality resources and services offered by unBanked today to learn about what they can do for you.
Who Uses FinTech?
Now that you’ve learned the fundimentals of FinTech and what it is, it’s essential to get a clearer understanding of who primarily makes use of FinTech software and all of the innovative solutions that it has been able to provide. The three key users that people should understand include:
Average, Everyday Consumers
These are primarily the individuals that we have been referring to throughout the article up until this point. The majority of those making use of the advancements in FinTech software are ordinary, individual consumers going about their daily lives in an easier, more direct way than they once had to before FinTech innovations started hitting the market. Now that people can utilize their phones to pay bills, buy groceries, invest their income in the stock market, handle their insurance, and much more, the world has become a more manageable and more easily navigable place.
B2B (Business to Business)
Before developing financial technology, businesses and corporations would have to go through banks to store their money and obtain financing and loans. However, FinTech has provided them access to such services through technological means without requiring them to go through more traditional forms of financial services. Additionally, the development of comprehensive customer-relationship management services and cloud-based storage platforms have allowed B2B’s to interact directly with and analyze their internal financial data to try and improve the quality of their services.
B2C (Business to Client)
Much of the banking industry’s first steps into the realm of FinTech were specifically taken to develop practical B2C applications that could facilitate quick and easy lending and payment services between businesses and consumers. Now, a massive range of different companies and industries have adopted FinTech as well. In doing so, they have made it exponentially more accessible for consumers to collect and transfer money to and from businesses via their mobile devices or through internet access.
Not only has this managed to reduce the amount of attention businesses and their employees need to give to customers during financial exchanges, but it has also given a truly significant amount of power and control to consumers.
Final Thoughts and Considerations
The various advancements that have been made within the FinTech industry over the past two decades have been immense. They have led to significant changes in how people interact with, think about, and control their finances in the modern era. These elements are essential to keep in mind as we advance and as financial technology continues to grow, adapt, and impact different aspects of our lives.
Whether one is looking into investing in developing FinTech companies soon, or because they want to understand how FinTech has managed to alter the relationship between finances and technology, it’s essential to consider how these changes have impacted us and will likely continue to do so. And, if you would like to learn more about financial technology, the stock market, cryptocurrency, or would like to gain access to a new breed of globally accessible bank accounts with fantastic rewards, please consider taking a look at the stellar resources offered by unBanked today.
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