People likely use some element of fintech on a daily basis. Some examples include transferring money from a debit account to a checking account via iPhone, sending money to a friend through Venmo, or managing investments through an online broker. According to EY’s 2019 Global FinTech Adoption Index, two-thirds of consumers utilize at least two or more fintech services, and those consumers are increasingly aware of fintech as a part of their daily lives.
Fintech in Practice
The most talked-about and most funded fintech startups are designed to challenge, and eventually take over, traditional financial services providers by being more nimble, serving an underserved segment of the population, or simply providing faster or better service.
For example, financial companies can seek to cut credit card companies out of the online shopping process by offering a way for consumers to secure immediate, short-term loans for purchases. Or, a company seeks to streamline the home mortgage process with a digital-only offering that can reward users with a verified pre-approval letter within 24 hours of applying.
For consumers with poor or no credit, fintech companies can offer microloans by doing a deep data dig on their smartphones for their transaction history or other related things. Then, the company gives the consumers better options than local banks, unregulated lenders, and other finance institutions.
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New Challenges
In the beginning, the term “fintech” was initially applied to the technology employed at the backend systems of established financial institutions, such as banks. Since 2010, fintech has exploded, with startups and incumbent financial firms either looking for new ventures or building out their own fintech offerings.
From 2018 or so to 2022, there was a shift to consumer-oriented services. Fintech now includes different sectors and industries such as education, retail banking, fundraising, and nonprofit or investment management.
Consumer-oriented fintech is mostly targeted toward Gen Z and millennials, given the huge size and rising earning potential of these generations. When it comes to businesses, before the adoption of fintech, a business owner or startup would have gone to a bank to secure financing or startup capital. If they intended to accept credit card payments, they would have to establish a relationship with a credit provider and even install infrastructure, such as a landline-connected card reader. Now, with mobile technology, those hurdles are a thing of the past.
New technologies, such as machine learning or artificial intelligence (AI), predictive behavioral analytics, and data-driven marketing, will take the guesswork and habit out of financial decisions. “Learning” apps will not only learn the habits of users but also engage users in learning games to make their automatic spending and saving decisions better.
