What is fintech and what are its major applications?

Summary 

• Fintech, or financial technology, refers to emerging technologies that help financial institutions enhance the delivery of their services.
• Fintech supports customers, corporates, and business owners better manage their financial operations and processes.
• The global fintech industry has shown resilience amid the pandemic, and experts opine the industry will grow at a CAGR of over 20% in the next four years.
• Digital payments, investment portfolio management, crowdfunding platforms, and insurtech are areas where fintech plays a crucial role.

Financial technology (fintech) refers to the emerging technologies that help financial corporations improve the delivery of services and products to their customers.

Fintech continued to help access financial services throughout the pandemic. As per the joint study conducted by the World Bank, Cambridge Centre for Alternative Finance, and World Economic Forum, there was strong growth in all financial services except lending.

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The global fintech industry showed resilience during COVID-19. As per market studies, Experts believe that the industry would grow at a CAGR of over 20% during 2019-2025, driven by high investment in technology-based solutions by banks and businesses.

This article will dive deeper into the fintech world and look at its applications and challenges.

What is financial technology or fintech? 

Fintech or financial technology uses software, algorithms, and mobile and computers applications to help customers, business owners, and companies manage their financial operations and processes.

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Fintech describes financial activities like money transfer, raising money for business startups, managing investment, etc., without an individual’s support.

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Technologies that contribute to financial technology

Artificial Intelligence and Machine Learning

Artificial Intelligence and Machine Learning are evolving technologies and are amongst the most used technologies in financial technology. These technologies have a significant role in activities like credit scoring, fraud detection, wealth management and regulatory compliance.

Big Data and Data Analytics

Like many other industries, data plays an essential role in the fintech industries. Through big data and data analytics, it is possible to derive customer behaviour, preference, and spending habits. Based on the data, it is easy to develop predictive analytics.

Robotic Process Automation

In Robotic Process Automation, the repetitive tasks are assigned to robotics to streamline the work in financial institutions. These works include data collection and statistics, regulatory compliance management, chatbots and communication via emails and transaction management.

Blockchain

The fintech industry is widely accepting blockchain technology as it is known to save transaction records securely. In blockchain, each transaction is encrypted, and the scope of cyberattacks is significantly less.

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What are the major applications of fintech?

Digital payment

Fintech allows users to send money without the help of any bank and process payment in a most efficient manner. With the evolution of the fintech industry, people have started using mobile wallets instead of credit cards.

Manage investment portfolio

Fintech allows people to hold their assets in a single place and also manage their financial portfolios. Moreover, using data analytics tools, one can increase automation like asset rebalancing.

Crowdfunding platform

Platforms like Patreon allow users to send and receive money from users on the same platform. It has also allowed many businesses to collect funding from many sources.

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Robo Advisers

Robo Advisers refers to the online investment management services that apply algorithms to assign assets and generate portfolios for customers optimally. They encourage people of different age groups to invest at low fees and minimum effort.

Insurtech

Insurtech refers to the use of fintech in the insurance model. It gives companies to offer their customers personalised service as well as data security. In addition, Insurtech helps users to streamline their insurance process via an online claim.

What are the challenges faced by fintech players?

Financial technology has evolved with time, and it continues to grow. However, there still exists a few challenges which businesses from this space experience, and it requires attention. Some of them are:

Data Protection

Nowadays, nearly all businesses are trying to protect their data when sharing it over the internet. Hence, financial technology companies must ensure that these commercial companies protect their data using blockchain technology.

Attracting new customers

Fintech has played a substantial role during the pandemic. Fintech companies are incredibly successful in raising investments. Still, these businesses experience challenges in getting new customers as many banks and financial institutions have started establishing their fintech apps.

Building trust

Fintech is a relatively new technology. Such a technology, which is also highly disruptive, can sometimes be challenging as businesses find it difficult to onboard customers. It is difficult for companies to convince customers to trust their brand. Many financial companies have to fight against such feelings by building trust via credibility, collaboration, and client experience.