Fintech Financial Technology

What is Fintech (Financial Technology)?
Fintech is a combination of the words “finance” and “technology.” Although it’s a blanket term that can mean many different things, broadly speaking, it describes the evolution of an industry where new technology use-cases are developed and deployed to streamline more traditional-looking finance functions.

While the general public typically associates fintech with really cutting-edge new concepts like blockchainBlockchainBlockchain networking allows maintenance of a growing list of records. Blockchain authentication is what supports cryptocurrency security. and algorithmic trading, the term applies to a very wide variety of much more “boring” applications. They include, but are not limited to, everyday banking, insurance, and other back-office risk management functions.

Mobile banking – something that hundreds of millions of people around the world take completely for granted – is actually technology supporting the delivery of traditional banking services (aka fintech). Even your Starbucks app is a form of financial technology in that it facilitates payments and a proprietary rewards program using a mobile device.

Summary
* Fintech is a combination of the words “finance” and “technology.”
* While many flashy, emerging technologies have grabbed headlines, fintech offers a variety of very traditional use cases.
* Fintech touches many of our lives daily without us even realizing it.

Understanding Financial Technology
Fintech is considered by many to be a relatively recent development, which is not entirely accurate. While it has evolved very quickly over the last decade, that’s mainly due to advancements in technology, more generally, which are now being applied to the finance sector.

Financial institutions have sought to streamline service delivery and cut costs by using technology for many decades, including the advent of the first automated teller machine (ATM)Automated Teller Machine (ATM)An Automated Teller Machine, better known as an ATM, is a specialized computer that makes it convenient for bank account holders to manage their money as far back as the 1960s. Even credit cards, which predate ATMs, were a revolutionary technological advancement in the payments space relative to cash and cheques.

The technologies that underpin fintech business models vary considerably. They include blockchain technology, artificial intelligence (AI), machine learningLoan Default Prediction with Machine LearningIn this course, learn basic Machine Learning skills to predict loan default using predictive models. Enroll today and advance your career with BIDA by CFI., and other big data functions like robotic processing automation (RPA). Each use case is unique, but the underlying theme is a collective effort to disaggregate the financial services sector, which, historically, has enjoyed a highly protected status due to high levels of regulation.

How are Fintechs Impacting Traditional Financial Services Firms?
Traditional financial services providersBanking Products and ServicesThe Banking Products and Services course is designed for those looking to become familiar with the products offered at global banks. Advance your career with CFI online courses. (mainly banks and credit unions) serve three core functions:

1. They hold money – including deposits and a variety of investment products.
2. They lend money – including both secured loans (like mortgages) and unsecured loans (like student lines of credit).
3. They move money – everything from simple, everyday payments to international money transfers using global networks like SWIFTSWIFTSwift is a vast and secure messaging system that allows banks and financial institutions worldwide to send and receive encrypted information. (Society for Worldwide Interbank Financial Telecommunications).

CryptocurrenciesIntroduction to CryptocurrencyIn CFI’s Free Cryptocurrency Course, students will get comprehensive overview of crypto, blockchain, digital keys, hash functions, and more. Enroll today!, for example, have been a major development in the payments space (moving money). And while there is much debate about whether or not cryptocurrencies are actual currencies, there is no doubt that they can serve as a medium of exchange.

The blockchain technology that underpins the various cryptos exists with the principal purpose of decentralizing (the historically very centralized) finance sector – bypassing traditional banks, financial institutions, and payment channels – often called the legacy financial system. Defi is itself a recent term and a by-product of the fintech revolution. It’s a combination of the words “decentralized finance.”

Countless other fintechs in the payment space have slowly started chipping away at the legacy financial system, including apps that have become everyday household names like Stripe, Venmo, Alipay, and even Apple Pay.

The lending money component of traditional financial services firms is being disrupted by fintech businesses as well. They include new products and services like buy-now-pay-later (BNPL), peer-to-peer lending platforms (P2P), and a variety of fast and highly automated underwriting programs (using AI and RPA-driven algorithms) to drive speedy credit decisions and fundings for both consumers and businesses – eliminating the friction of borrowing from a traditional financial services firm.

And finally, the financial services industry’s traditional function of holding money is not immune to the fintech revolution, either. These include altogether virtual banks, which hold charters and clear all required regulatory hurdles within their various jurisdictions.

The business of investing has been particularly transformed, with the democratization of trading effectively hollowing out the brokerage industry as we know it. They were formerly very high-margin, fee-based businesses, but online discount brokerages have forced many firms to waive their fees altogether in order to remain competitive.

An entire generation of young consumers engage almost exclusively with robo-advisorsRobo-AdvisorsRobo-advisors are online investment management services that employ mathematical algorithms to provide financial advice with minimal human intervention. (like Wealthsimple) and savings apps (like Acorn); they rarely set foot in a physical bank branch.

The fintech revolution has created a variety of important and growing subcategories. They include the aforementioned “defi,” “insuretech” (insurance technologies), and “regtech” (regulation technology), among others.

Related Readings
Thank you for reading CFI’s guide to Fintech (Financial Technology). To keep advancing your career, the additional resources below will be helpful:

* Algorithmic TradingAlgorithmic TradingAlgorithmic trading strategies involve making trading decisions based on pre-set rules that are programmed into a computer.
* Online Payment CompaniesOnline Payment CompaniesOnline payment companies are responsible for handling online or internet-based methods of payment. Examples include PayPal, Alipay, and Google Pay.
* Artificial Intelligence (AI)Artificial Intelligence (AI)Artificial Intelligence (AI) is a broad branch of computer science that is focused on a machine’s capability to produce rational behavior from external inputs.
* Types of Financial AnalysisTypes of Financial AnalysisFinancial analysis involves using financial data to assess a company’s performance and make recommendations about how it can improve going forward. Financial Analysts primarily carry out their work in Excel, using a spreadsheet to analyze historical data and make projections Types of Financial Analysis