What is Fintech? |Lion.io
What is Fintech? Overview
Fintech is a combination of the words “Finance” and “Technology” over the years we have seen a growing number of new companies that pioneer using technological solutions to enhance financial services and offer more cheaper, faster and efficient services to a digitally minded customer base
The industry has been readily growing and serving customers and businesses. Their services include online banking, insurance, cryptocurrency and investments. According to CB Insights “There are 41 VC-backed fintech unicorns worth a combined $154.1B.” Another reason that is helping fintechs to grow so much is the fact that many banks are collaborating or acquiring these companies. Banks would rather buy into these companies then to stop them, it’s much easier and it helps move the industry forward.
How Does Fintech Work ?
Fintech has a number of applications, however before we get into applications, we need to look at the technology behind many fintechs, many fintech operate on blockchain technology, machine learning or artificial intelligence and data science. All these technological advances help fintechs to do everything, from credit risk, hedge fund processing, insurance claims and even financial planning.
Fintechs also need to be regulated as they operate in the financial services industry, and that’s why we also have other companies that handle regulation for fintechs called Regtechs. These companies ensure that all fintech companies comply with the regulations of specific regions companies operate in. We will come back to Regtechs in our next posts.
Applications for Fintech
Since the industry is new, many traditional financial services companies are giving themselves away to these companies, and many of them are already using fintech applications in their services too. Here is a quick look at all applications of fintech
Banking
The biggest innovation in banking is that many people especially millennials and gen Z prefer to bank on their phones rather than going into the physical presence of a bank.According to a report released in 2018 by The Financial Brand a third of Gen Z surveyed prefer to make their banking online using apps like PayPal or Google Pay.
Lucky enough many banks today have a mobile banking feature for their client. Since clients are looking for simplicity and user friendliness, today we see new types of banks which are commonly known as Neobanks, and yes, neobanks are fully digital banks that dont have branches, and they rely on their mobile application to service their clients. Examples of neobanks are Banks like Tyme Bank, Chime, and Vero.
Blockchain & Cryptocurrency
We have previously written about blockchain in this publication, do checkout other posts on this topic.
Blockchain has been considered as one of the key fundamentals for fintech businesses, because of its promise to offer businesses a secure and distributed system that can help businesses to operate on a secure system. Cryptocurrencies like Etherum have smart contracts that are like a set of rules that live on-chain for all to see and run exactly according to those rules.
Investing & Savings
It’s not a surprise that many companies are offering investment and savings services that allow customers to benefit from low spread, low stock commissions. Startups like Robinhood, have made it much easier for people to invest in a wide range of stocks, cryptocurrencies, ETFs and options.
Machine Learning & Trading
When using machine learning(AI) for trading presents new opportunities for institutional and hedge fund managers to make more billions for their clients using advanced tech to develop algorithms that can generate more and more accurate results. The power of this AI-subset lies in its ability to run massive amounts of data through algorithms designed to spot trends and risks. Many investment managers might miss out on the potential that AI presents; they don’t have a strategy that embraces machine learning.
Payments
Payment solutions that fintech presents are the most popular form of fintech companies. Companies like Paypal, Vermo, Skrill and Ripple. All these companies provide a fully digital service for customers to make online payments and receive payments for their online services they render online. Since we are living under Covid 19 conditions it’s more convenient for people to make cashless transactions compared to holding cash by hand.
According to a report done by Statias indicates that “ the total transaction value in the Digital Payments segment is projected to reach US$6,685,102m in 2021.”
Lending
Fintech companies are also making it a possibility for many people to access credit. Billions of people are able to access credit using their smartphones, they also have access to their credit reports which help them make decisions faster. This new opportunity means that fintech businesses need to offer customers more personal products based on their credit profile. There are a number of credit lending companies however the most noticeable of them are Tala, Petal and Credit Karma.
Insurance
Last by not least we have insurance or better known as Insurtech is becoming an industry on its own. Many new companies are creating new and exciting insurance products that use tech to give people a more personalized experience. Insurtech can be found in Health insurance, car insurance, wearable tech insurance and so further. Insurance is a late adopter of this tech however there are more developments happening in this sector then before. Examples of companies like this include; Oscar Health, Robot Insurance and PolicyGenius.
This is just an indication that many of our transactions will be done cashless, over the next couple of years. That's why we need to be more financial savvy and equip ourselves with financial skills that can help us leverage the power of these digital financial services. Lucky enough we always publish topics relating to finance, tech and financial literacy. Follow and like to receive all new posts every week.
