Over the past few years, fintech companies have disrupted virtually every aspect of the financial industry. Ten years ago, people had to visit a bank or financial company to apply for a mortgage, small business loan or simply transfer funds from one bank to another. Today, fintech has made it possible to invest, borrow, save and transfer funds through online and mobile services without ever stepping foot inside a bank. Though traditional institutions were slow to adopt fintech solutions, both startups and established companies are betting on digitized financial services.
[Read: 5 Apps to Help Manage Your Business Finances]
What exactly is fintech?
Fintech, or financial technology, is the term used to describe any technology that delivers financial services through software, such as online banking, mobile payment apps or even cryptocurrency. Fintech is a broad category that encompasses many different technologies, but the primary objectives are to change the way consumers and businesses access their finances and compete with traditional financial services.
Evolution of fintech
Fintech has been around much longer than most people think. While the latest iteration of fintech allows you to pay for a cup of coffee with a mobile app, the history of financial technology can be traced back to the earliest credit cards that were adopted into the general public in the late 1950s.
After the credit card, financial technology evolved and introduced several major milestones to the mass market, such as ATMs, electronic stock exchanges, bank mainframe computers, and online stock exchanges. Each new piece of technology advanced the financial infrastructure that most people used everyday, but rarely had to think about.
Before the 1990s and the era of the internet, traditional financial institutions, such as banks, thrived on fintech. According to the Federal Deposit Insurance Corporation, banks grew from around 13,500 commercial bank branches in 1950 to over 83,000 in 2008. In the late 1990s and early 2000s, online fintech companies, such as PayPal, entered the market but didn’t really threaten the traditional infrastructure until the 2008 global financial crisis. During this time, many people lost their trust in traditional banking while millennials welcomed free and online financial services.
Fintech is a broad category that encompasses many different technologies.
Today, fintech solutions are challenging the traditional financial infrastructure, as more services transition to a new technological paradigm, such as using a payment app on a mobile wallet instead of carrying physical credit cards in a physical wallet.
Fintech has revolutionized many different markets, most notably the banking, trading, insurance and risk management industries. Fintech companies, which include startups, technology companies and established financial institutions, utilize emerging technologies, such as big data, artificial intelligence, blockchain and edge computing to make financial services more accessible and more efficient.
[Read: Financing Strategies for Every Stage of Your Business]
Types of fintech
There are many different types of fintech, but some of the most popular areas are:
- Mobile wallets and payment apps are some of the most ubiquitous forms of fintech. Services like PayPal, Venmo, Square, Apple Pay and Google Pay allow peers to transfer money to each other or merchants receive payments from customers.
- Crowdfunding platforms, such as Kickstarter and GoFundMe, have disrupted traditional funding options by allowing platform users to invest their money in businesses, products and individuals.
- Cryptocurrency and blockchain technologies are some of the most well-known, and most scrutinized examples of fintech. Cryptocurrency exchanges, such as Coinbase and Gemini, allow users to buy or sell cryptocurrencies. Blockchain technologies also have the potential to move into industries outside of finance to reduce fraud.
- Robo-advisors consist of algorithm-based portfolio recommendations and management to lower costs and increase efficiency. Some popular robo-advising services include Betterment and Ellevest.
- Stock trading apps, such as Robinhood and Acorns, have become a popular and innovative example of fintech as investors can trade stocks from anywhere with their mobile device instead of visiting a stockbroker.
- Insurtech companies have disrupted many different types of insurance, such as car and home insurance. Companies like Oscar Health and Credit Karma are examples of insurtech companies that have entered the healthcare and personal finance industry.
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