… from the desk of the CEO
Financial technology (FinTech) is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services.
The use of smartphones for mobile banking, investing services and cryptocurrency are examples of technologies aiming to make financial services more accessible to the general public. Financial technology companies consist of both startups and established financial and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies.
After reviewing more than 200 scientific papers citing the term FinTech, the most comprehensive scientific study on the definition of FinTech concludes that FinTech is a new financial industry that applies technology to improve financial activities.
– In addition to established competitors, FinTech companies often face doubts from financial regulators like issuing banks and the Federal Government.
– Data security is another issue regulators are concerned about because of the threat of hacking as well as the need to protect sensitive consumer and corporate financial data. Leading global FinTech companies are proactively turning to cloud technology to meet increasingly stringent compliance regulations.
– The Federal Trade Commission provides free resources for corporations of all sizes to meet their legal obligations of protecting sensitive data. Several private initiatives suggest that multiple layers of defense can help isolate and secure financial data.
– Any data breach, no matter how small, can result in direct liability to a company and ruin a FinTech company’s reputation.
– The online financial sector is also an increasing target of distributed denial of service extortion attacks.
– Marketing is another challenge for most FinTech companies as they are often outspent by larger rivals.
– This security challenge is also faced by historical bank companies since they do offer Internet connected customer services.
The term financial technology can apply to any innovation in how people transact business, from the invention of digital money to double-entry bookkeeping. Since the internet revolution and the mobile internet revolution, however, financial technology has grown explosively, and FinTech, which originally referred to computer technology applied to the back office of banks or trading firms, now describes a broad variety of technological interventions into personal and commercial finance. According to EY’s FinTech Adoption Index, one-third of consumers utilize at least two or more FinTech services and those consumers are also increasingly aware of FinTech as a part of their daily lives.
If one word can describe how many FinTech innovations have affected traditional trading, banking, financial advice and products, it’s disruption, as financial products and services that were once the realm of branches, salesmen and desktops move toward mobile devices or simply democratize away from large, entrenched institutions. For example, the mobile-only stock trading app Robinhood charges no fees for trades, and peer-to-peer lending sites like Prosper Marketplace and Lending Club promise to reduce rates by opening up competition for loans to broad market forces.
New technologies, like machine learning/artificial intelligence, 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, often hidden to themselves, but will engage users in learning games to make their automatic, unconscious spending and saving decisions better.
FinTech startups received $17.4 billion in funding in 2016 and were on pace to surpass that sum as of late 2017, according to CB Insights, which counted 26 FinTech unicorns globally valued at $83.8 billion. North American produces most of the FinTech startups, with Asia following. Some of the most active areas of FinTech innovation include or revolve around the following:
– Cryptocurrency and digital cash
– Blockchain technology, including Etherium, a distributed ledger technology (DLT) that maintain records on a network of computers, but has no central ledger.
– Smart contracts, which utilize computer programs (often utilizing the blockchain) to automatically execute contracts between buyers and sellers.
– Open banking, a concept that leans on the blockchain and posits that third-parties should have access to bank data to build applications that create a connected network of financial institutions and third-party providers. An example is the all-in-one money management tool Mint.
– Insurtech, which seeks to use technology to simplify and streamline the insurance industry.
– Regtech, which seeks to help financial service firms meet industry compliance rules, especially those covering Anti-Money Laundering and Know Your Customer protocols which fight fraud.
– Robo-advisors, such as Betterment, utilize algorithms to automate investment advice to lower its cost and increase accessibility.
– Unbanked/underbanked, services that seek to serve disadvantaged or low-income individuals who are ignored or underserved by traditional banks or mainstream financial services companies.
– Cybersecurity, given the proliferation of cybercrime and the decentralized storage of data, cybersecurity and FinTech are interlocked.
Who uses FinTech? There are four broad categories: 1) B2B for banks and 2) their business clients; and 3) B2C for small businesses and 4) consumers. Trends toward mobile banking, increased information, data and more accurate analytics and decentralization of access will create opportunities for all four groups to interact in heretofore unprecedented ways.
– Security: Data that is available online can easily be stolen by third parties. They could be used for other lucrative purposes or even for identity theft.
– In fact, one of Finch’s top priorities is safety. So you can choose the companies instead of the traditional means because they represent a form at least equal or more secure than the traditional methods of banking.
– Only applies to large companies: Effectively large companies started using the FinTech. At the present time, the end users are the ones who benefit most from such solutions.
Generally, FinTech lenders don’t take your credit score into account but instead assess your creditworthiness using a vast range of data points including sales information from websites such as Amazon, Etsy, and Ebay, accounting details from QuickBooks Online, online reviews on social media, or other information. However, on the flip side, these lenders generally do not update your credit report. With traditional loans, the lender updates your credit report every time you submit a payment, and timely repayments can help improve your credit score. Unfortunately, even if you repay a FinTech lender in a timely fashion, it won’t help to boost your credit score.
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