There’s a valid reason for the confusion though, the diverse portfolio of services on offer is entirely too disparate to group into one catch-all definition. Within this article, we’ll look at the most relevant aspects of FinTech, the pros and cons of using financial technology in an age where technological advances move at the speed of light, and what it means for banks and individuals in the future.
What Is FinTech, And How Does It Work?
The veritable buzzword, FinTech describes any form of financial technology that pushes the envelope in terms of convenience, simplicity, and functionality. As you may have guessed by now, FinTech is thrust forward by technology to streamline, digitize and disrupt tired old financial services. FinTech automates and improves the delivery and use of financial services by being agile and scalable.
FinTech predominantly refers to algorithms, apps, and software incorporated into PC and mobile-based tools. Which kind of tools? The simple answer is any conceivable tool related to finance, such as everyday activities, including hailing an Uber, splitting a dinner check, paying bills right through to more technical systems that include peer-to-peer lending and cryptocurrency exchanges. FinTech isn’t just for consumers; banks use FinTech for their back-end systems and consumer-facing solutions such as banking apps, while businesses rely on FinTech for accounting, e-commerce transactions, and payment processing.
One of the latest and revolutionary iterations of FinTech is, without a doubt, blockchain. Blockchain has played a significant role in driving the FinTech revolution ever forward. With the rise of Bitcoin, both consumers and businesses have the golden opportunity to control their finances free from institutionalized restrictions.
Modern references to FinTech would have one believe that it’s a recent development, but FinTech has been around for quite some time. A key example of FinTech in action is the introduction of credit cards as far back as the 1950s and ATMs in the 1960s.
FinTech vs. Traditional Financial Services
FinTech falls under disruptive technology, with the expression referencing the disruption new technology poses for older, less efficient technology. The ‘disruption’ that takes place is that new technology dramatically alters how businesses, consumers, and industries operate. Furthermore, disruptive technology makes the behavior or systems it replaces obsolete, as its features are far more superior.
FinTech disruption does not necessarily do away with financial services’ systems as it would be incredibly challenging and complicated to attempt such a mean feat. Instead, FinTech operates both independently and dependently with financial services such as banks and other financial institutions. There is naturally an exception to the rule, and that’s cryptocurrency and blockchain.
As more people become aware of new financial technology’s implications and possibilities, it’s only logical to evaluate its pros and cons vs. traditional financial services.
FinTech pros and cons:
- Competitive pricing – a new FinTech system free from the restriction of legacy technology can offer their services at a fraction of traditional banks’ prices.
- Targeted solutions – FinTech disaggregates (breaks up) the core components of traditional banks into separate specialized services. Customers can now deal with a company specializing in digital loans, mobile stock services, e-commerce payment platforms, or digital currency exchanges instead of a bank that offers all of these services in a broader capacity.
- Convenience – FinTech offers consumers more practicality, customization, and simplicity as opposed to traditional financial services.
- Speed – FinTech is agile and quick. FinTech services offer a dramatic increase in transaction speeds.
- Better customer service – As the majority of FinTech companies vie for customers, they focus on customer-centric service to attract more business.
- Reputation – Many new FinTech startups are relatively unknown and untrusted by consumers.
- Risk exposure – FinTech companies operating in unregulated industries such as cryptocurrency expose customers to more risk.
Traditional Financial Services pros and cons:
- Reputation – Large banks are recognizable brands that offer reliable financial services to large customer bases.
- Risk exposure – Traditional financial services are more stable, with comprehensive resources to safeguard their capital, minimizing consumers’ risk.
- Slow transaction times – Traditional financial services use legacy technology that slows down their processes and transactions.
- Customer experience – Banks have to contend with large amounts of customers resulting in diluted customer services.
- Higher cost – Customers are subjected to higher prices and fees compared to FinTech.
- Less specialized services – Banks offer various services at a non-expertise level, comparable to Jack of all trades, master of none.
How Is FinTech Affecting Banks?
FinTech has systematically encroached on banks, with the latter slowly incorporating key developments into its products to appease its demanding customer base accustomed to high functionality and exceptional service. However, many benefits remain unmatched by banks.
The top FinTech companies allow their customers to get detailed information about their offering online and negates the need to consult with a financial advisor in person. FinTech uses all of its technological advances to offer social media, apps, and more to make the user experience as streamline as possible. Banks still require a customer to visit its physical location for loan applications and the like. Banks have jumped at the opportunity of introducing mobile apps and online banking, but it’s still a far cry from FinTech’s sophisticated offerings.
Banks still rely on their employees to deal with queries and issues, while FinTech has by and large automated its customer service with chatbots sorting out any relevant concerns. Not only do chatbots effectively solve problems, but they’re also available 24/7, unlike the bank’s human counterparts.
How Can Traditional Banks Compete with FinTech?
Many a financier has asked the question, “Can FinTech replace banks?” Well, the simple answer is possibly, but most unlikely. Banks have grown weary of the imminent threat and taken action to remain barely relevant.
It would be an impossible task to overthrow the current financial infrastructure and replace it with new technology. Instead, banks have reluctantly adopted the necessary FinTech basics to keep afloat and pacify any demanding customers by collaborating with FinTech companies to deliver a hybrid that satisfies the requirements brought about by the status quo.
The slow integration comes as no surprise as traditional financial institutions hesitate to fund FinTech to deliver superior service but instead opt to contract core system workarounds.
Banks would inevitably have to readily adopt technological advances as the financial services industry experiences a widespread disruption. The long-term benefits of FinTech for banks would result in a resoundingly improved financial experience for all customers concerned.
Top FinTech Companies
As technology rips through the financial market, these top 10 FinTech companies garner a fair amount of attention. Not only are these companies introducing new technology to existing services, but they’re doing it with aplomb.
The top FinTech companies are as follows:
- Chime – According to reports, the pioneering mobile bank is one of the US’s fastest-growing banks. It features no-fee and automatic savings accounts and early payday via direct deposit.
- Tala – Credit access in developing countries is problematic at best. Tala streamlines the process with alternative data used to underwrite individuals without a credit history.
- Pitchbook – This financial software and data company allows customers to take a closer look at the finer details. The due diligence resource provides access to private market intel, fundraising information, and source investments.
- Avant – Middle-income consumers rejoice. Avant offers easy applications to loans ranging from $2,000 to $35,000. Loan approvals take only 24 hours to be approved.
- Braintree – PayPal service, Braintree is an online payment solution that processes credit and debit cards, PayPal, Apple Pay, Google Pay. The full-stack payments platform negates the need for a payment gateway and merchant account from different providers.
- Morningstar – This is the perfect app for investors of all levels to gather crucial professional-grade financial research and information to assess potential investments.
- Robinhood – Investing is instantly accessible to everyone. The Robinhood app charges no fees for investments and is the ideal starting point for aspiring traders looking to profit off the bitcoin price and FinTech cryptocurrency blockchain.
- Acorns – Customers can now save the cents they’d ordinarily forget. The app is linked to the customer’s financial accounts and invests the change into a diversified portfolio to generate profit.
- Gravity Payments – Enter a low-cost payments processing platform for small businesses that need flexible processing solutions. Gravity Payments delivers streamlined credit cards, POS, and gift card processing.
- Brex – Business is booming with this credit card designed by Brex. It’s geared towards tech, e-commerce, and life sciences companies and offers dramatic perks such as 10-20x higher credit limits and an abundance of rewards.
Is FinTech The Future of Finance?
There have been numerous questions posed since FinTech’s encroachment on the traditional financial landscape. “Is FinTech a threat to traditional banks?” “What is FinTech Cryptocurrency?” and “How is FinTech affecting banks?”
With so many relevant questions requiring scrutiny, it’s plain to see that FinTech is making waves. Disruptive technology will undoubtedly change the way financial services operate, plus it’s bound to change the mindsets of consumers. Demand for efficient, superior, and cost-effective services will inevitably increase until FinTech is widely-adopted.
Wrapping it up
FinTech continues to challenge ineffectual, slow and expensive services to deliver apps and software that make sense from a global standpoint. Individuals cut off from financial services and resources now have access to tools and resources to grow economically.