A Beginner’s Guide to Fintech (with examples)

The chances are, you’ve seen the word ‘fintech’ splashed across your phone or TV screen recently.

What is Fintech?

Fintech is the seamless merging of the financial and tech sectors. It uses innovative technology to automate and enhance financial services for both businesses and consumers.

While fintech examples exist as early as 1998 (think Paypal), the fiscal concept has gained significant traction since the start of the COVID-19 Pandemic, attracting the attention of notable financial entrepreneurs.

You can find examples of fintech everywhere. Think about your weekend. Did you split a dinner bill with friends using Venmo? Did you take an UBER home in the early hours? Both these applications are examples of fintech!

How Does Fintech Work?

Fintech connects people with financial services in a more accessible way. It relies heavily on automation to almost instantly complete tasks that would take a dedicated financial advisor several days. For example, loan approval. Unlike the big banks, a lot of fintech companies already have access to swathes of our personal data, including our risk appetite and spending patterns. This extensive consumer data allows smart software to quickly assess risks and create tailored financial packages for the modern client.

As of 2019, 22% of American adults were classed as unbanked or underbanked, the majority of them lower income earners. These individuals are often turned down by traditional banks for vital services, leading them into the arms of loan companies, who may offer high interest credit cards and other inappropriate financial products. Using a dynamic risk assessment system supported by AI, fintech can step in to provide this cohort with a fair and serviceable loan for their circumstances.

What Are Some Other Examples of Fintech?

ATMS

ATMS (automated teller machines) have been around since 1967 and are no longer considered cutting edge technology. However, they are often referred to as the ‘Grandfather of Fintech.’ The principle of 24/7 access to your funds, without the need for human interaction, is a perfect example of financial technology in action.

Buy Now, Pay Later Apps

Klarna, Afterpay, Zip Pay… These BNPL apps are used to divide payments for products and services into small, manageable installments. Unlike LayBuy, you receive your purchase as soon as you make the first payment. BNPL apps typically don’t charge interest, making them safer and more affordable than traditional loans.

Money Transfer / Peer-to-Peer Apps

In the post-pandemic world, cash is dying out. In the past, we relied on cheques and bank transfers to split costs between friends, which could take days to clear and leave someone out of pocket. P2P apps, like Paypal and Venmo, solve this dilemma by allowing you to transfer between two entities quickly and securely, even between countries.

Other examples of fintech in action include cryptocurrency, budgeting apps and crowd funding websites.

What Are the Risks?

No financial service is without risk. Fintech risks include:

Hacking

Like traditional banks, fintech is vulnerable to cyber-attacks and data theft. Ensure the fintech companies you bank with have robust cyber security measures in place to limit your personal risk.

Poor Regulation

Fintech is in its infancy and regulatory policies to keep stakeholders safe are still being developed. In the USA, regulatory bodies CFTC and SEC exist to mitigate this risk by holding fintech companies to strict standards and punishing non-compliance. Be aware of your country’s regulations and laws around fintech before investing.

Other possible risks include market volatility and personality liability – both factors that exist within traditional banking settings.

Now you know the basics of fintech, you can make an informed choice about how you conduct your banking in the digital world.