What is fintech?
Financial Technology which is better known as FinTech and is defined as the technology developed in order to improve the traditional financial methods. All around us we have examples of technologies that are used to have a new experience and to offer a new and more accessible services to the market.
Today we hear more and more often talk about the FinTech and the change that could
take to us. It is impossible to think a world without Internet to make online research or buy something on Amazon and so on, but it hasn’t always been this way. The innovation was the beating heart in the last decade and the financial service didn’t look at this so much. FinTech is the innovation in the financial service.
By leveraging new technology, the FinTech has the possibility to improve, make it safer and efficient our financial activities. The FinTech are so relevant in this time because we can see a very large number of startups that are trying to compete with the banking sector. So, it is in this field that there is a battle for market share and for the growth of the business. With automation it is possible to save cost on wage for example. In fact, according to estimates done by PwC, more than half of the activities people are paid to perform can be automated by adopting advanced robotics and AI.
Importance Of Fintech
The importance of financial industry and its incentive role in the economic growth has
become a global concern after the financial crisis 2008. Besides, this importance
transmitted to the FinTech companies that lead to reduce risks and costs in the financial industry through the application of IT innovations. It is clear that the function of FinTech companies is to evolve the task of the financial system. Indeed, the rise in importance of FinTech companies on economy as a whole is due to the finance that forms inputs for production activities and consumption activity, as well as encourage saving, investment and superior investment decisions.
History of fintech
FinTech is often seen today as the new marriage of financial services and information
technology. However, this interlinkage has a long history and has evolved over three
distinct time periods.
Fintech in (1886-1967)
This is an era when we can first start speaking about financial globalization. It started with technologies such as the telegraph as well as railroads and steamships that allowed for the first time rapid transmission of financial information across borders. The key events on this timeline include first transatlantic cable (1866) and Fedwire in the USA (1918), the first electronic fund transfer system, which relied on now-archaic technologies such as the telegraph and Morse code. The 1950s brought us credit cards to ease the burden of carrying cash. First, Diner’s Club introduced theirs in 1950, American Express Company followed with their own credit card in 1958.
Fintech in (1967-2008)
This period marks the shift from analog to digital and is led by traditional financial institutions. It was the launch of the first handheld calculator and the first ATM installed by Barclays bank that marked the beginning of the modern period of fintech in 1967.
There were various significant trends that took shape in the early 1970s, such as the establishment of NASDAQ , the world’s 1st digital stock exchange, which marked the beginning of how the financial markets operate today. In 1973, SWIFT which stands for (Society For Worldwide Interbank Financial Telecommunications) was established and is to this day the first and the most commonly used communication protocol between financial institutions facilitating the large volume of cross border payments.
Financial service in 90’s
To better understand the future trend of the evolution of financial services and FinTech it’s important to understand the starting point of this process of evolution. Since the birth of the modern banks, that it’s considered in Italy (the first bankers were Tuscan), the financial services have not changed so much, but the methods and speed, with which they are used, have changed. It’s emblematic a famous sentence of Bill Gates in the 1994: “the world need banking, but it does not need banks”.
Fintech in (2008-2014)
There is not an exact data in which the FinTech is born. It was a constant and incremental process that took the market and the technology to current development. Obviously, this process, as mentioned before, wasn’t as fast as it is today but in that years we saw the beginning of a transformation which today becomes vitally important to compete in the market. To get to the present days and start talking about some financial services that are shaping the competitive market it’s important to say what are the enabling factors that have allowed and constitute the engine of this development.
The “Z generation” and the digitalization. With the name “Z Generation”, apart from the still open discussion on the name, are called the people who were born from the mid-1990s to the late 2000s. They represent the future market, so we have to understand what are their characteristics to have a different point of view in analyzing the financial services.
Top 5 fintech trends & applications in 2023
The most important sector in which the banking sector is focusing in order to develop new innovative solution to their customer. We’ll analyze what are them and several example of FinTech that operate in the specific sector. We start from the Blockchain and Bitcoin, the main path of the Digital Payments, the new way to have a credit or funds with the Peer-2-peer and the digital lending solution and also the crowdfunding and its specialization, the reward and equity crowdfunding, after we’ll go to analyze how the roboadvisor is used in the trade activities and the importance of the Big Data, what are and how it’s possible to exploit them.
Here are some Applications Of Fintech these days:-
- Blockchain
- Bitcoin
- Digital payments
- P2P and digital lending
- Asset management platforms
- Finance & Financial Services
1. Blockchain
The blockchain is a growing list of records, called blocks, which are linked using
cryptography. Each block contains a linked to the previous block that is called
cryptographic hash, a timestamp, represented the moment in which it was insert in the
chain and transaction data. It is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.
For use as a distribution ledger, a blockchain is managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks. Once recorded, the data contained in the blocks cannot be altered without alteration of all subsequent blocks, which requires consensus of the network majority, so this means that blockchain could be considered secure by design.
2. Bitcoin
The blockchain was strongly spread for the first time through the creation of Bitcoin. So, after to talk about the blockchain, it was impossible not to mention the Bitcoin, the famous cryptocurrencies. The importance of the Bitcoin in the payment system
The Bitcoin is the first case of successful global virtual currency, created in 2009 by an
anonymous, known under the pseudonym of Satoshi Nakamoto. Different from the national currencies which are regulated by the central banks, it exploits the system of cryptography and the record of transaction of the blockchain.
Once installed on a computer or smartphone, the bitcoin portfolio generates the unique bitcoin address to be shared and it’s possible to make transactions. All the confirmed transactions are included in the blockchain that verified its validity and uniqueness, in order to assign the value in bitcoins to the legitimate owner, without the need for a regulated and authorizing system by third parties. Through the “bitcoin exchange” and related exchange rates, the bitcoin holder can transform this value into real currency. With specific bitcoin ATM it’s possible withdraw cash in your own currencies or to spend them in online purchases at affiliated merchants.
3. Digital payments
The world of the payments is the core of the banking system. It’s the second source of
revenue for the system, according to a report by McKinsey (Global Banking Annual
Revenue Report, 2015), this segment generates around 31% of the global revenues of the banking sector. So, we could say that if the world of payments changes also the banking sector change.
We already see projects in the field of the digital payments, especially in the P2P send
money network. Examples are Venmo in the USA, a FinTech startup acquired by PayPal that counts 6 Billion dollars per year of P2P transaction value, or the Swedish platform Swish that counts more than 500 million of activate accounts.
The send money P2P is an example also of how the competition arrive from the outside to the banking sector with the interest of Google and Apple, and WeChat, a Chinese app for instant messaging, that has developed its own P2P send money system with 200 million activate accounts.
The entry in the market of the big names of the web, the instant messaging and social networks creates a new phase in the P2P payments and opens opportunity for non-bank players that have a greater customer base than the banking sector and bring more capacity to design the user experience with much better digital service. The final goal is the instant money transfer or instant payment, a fundamental goal to have a world with a growing globalization and to have faster commercial exchanges.
4. Peer To Peer & Digital Lending
The countries where P2P lending is most developed are USA, UK and China and it is precisely in these countries that the main FinTech startups operating in this sector were born. The first FinTech, in chronological order of creation, is the British Zopa, inserted in the Best 50 global FinTech innovators by KPMG. In USA we could found Lending Club and Prosper while in China we found Credit Ease. Today there are about 1800 platforms operating in the sector.
To understand the volume of credit issues, just think that at the end of 2015, the 5 top players in the lending marketplace in the US reached 25 billion of dollars in loans granted. Lending Club is certainly the most famous platform operating in the sector and after almost ten years of activity, its scoring and pricing and risk allocation systems are considered efficient to the point of representing a valid alternative to the traditional instruments used in the traditional banking sector.
5. Asset management platforms
Asset managers should provide transparency of trade-offs between cost, risk and
performance during the whole life of the asset. However, the traditional assets management has been criticized for non-transparent fee structure and conflicts of interest.
The rise of FinTech companies within the field of asset management has created new
rivals for the banks, because the new entrants do not have to comply with strict regulatory commitments like banks do. Asset management is disrupted by DAMPs (Digital Asset Management Platforms) that include a set of services such as Robo-Advising, trading support and third-party analytics. Robo-Advisor companies give a set of wealth management services.
6. Finance & Financial Services
The insurance industry is not exempted from the new development of technology. For
decades until 2010, the finance industry was functioning as usual, but from 2010 a new type of insurers entered the market and started to offer innovative services. This situation leads insurance companies to be more open for innovation, which means that insurers should not only focus on current clients and lower cost, but they have to think out of their “comfort zones” as the rivals of future who might come from another industry.
FinTech companies that provide insurance products and services are dubbed InsurTech
companies, which attack traditional insurers because they offer more attractive services for clients. The first generations of InsurTech companies in Europe are Clark and Knip, which become a pioneer in digital insurance. Moreover, it confirms that the traditional insurance companies are disrupted by InsurTech companies, because the latter have a deep insight of technology and the ability to apply technologies in insurance business; in addition, they productize solutions and new applications, which traditional insurers did not perceive before.
The impact of FinTech on companies
1. Changes in business model
BM is a paramount tool because it shows the substance of business activities, which lead to obtain profits. It is widely used by companies to illustrate how their business functions by including several aspects, such as suppliers, customers, channels and objectives of business.
The innovative BM that is adopted by FinTech companies means that firm should look
for new model continually or modify the current one, in order to increase the value created and return this value to the firm that created it, i.e. the firm should add two more elements to their traditional BM, the cost of creating value and the way to return that value to the firm.
The FinTech companies exploit the increasing disequilibrium between the offers of
traditional insurers and the customers’ expectations by providing modern solutions or
making developments for insurance services.
2. Providing financial stability
The financial stability is defined as a financial system, which has the ability to facilitate
the economy performance rather than encumber the performance of an economy and
maintain the financial equilibrium by dissipating the financial disequilibrium
Fintech tools provide real-time insights into a company’s financial health, facilitating better financial management. Automation of tasks like accounting, invoicing, and expense tracking reduces manual errors and ensures accurate financial data. This transparency allows businesses to make informed decisions promptly.
3. Data-Driven Decision Making
FinTech leverages big data and analytics to provide valuable insights into customer behavior, market trends, and financial performance. Companies can make data-driven decisions, enabling them to identify opportunities and mitigate risks effectively.
Fintech analytics can forecast demand based on historical sales data, enabling you to maintain the right level of inventory. This reduces the risk of stockouts or excess inventory, saving costs and improving customer satisfaction.
Fintech Startups and Investment Trends
FinTech companies as young companies that leveraging new innovative technology within the financial industry. They have strong capabilities to analyze data, apply machine learning and AI. The platforms for distributing or aggregating financial services are often key in their offerings.
FinTech companies often focus on areas where the banks are not very active. While areas core to the banking business are harder to penetrate. The trend over time is that FinTech companies move closer and closer to the banks’ core products and segments.
| Rank | Company | Establishment Date | Description |
|---|---|---|---|
| 1 | Paytm | 2000 | Mobile payments and financial services company. One of the most valuable fintech companies in India. |
| 2 | PolicyBazaar | 2008 | Insurance comparison website and broker. One of the most popular insurance websites in India. |
| 3 | CRED | 2017 | Credit card payment and rewards platform. Offers a variety of features to help users manage their credit cards and earn rewards. |
| 4 | ZestMoney | 2015 | Buy-now-pay-later (BNPL) platform. Offers short-term loans to consumers to help them purchase goods and services. |
| 5 | Razorpay | 2014 | Payment gateway and digital payments platform. One of the most popular payment gateways in India. |
| 6 | IndusInd Bank | 1994 | Private sector bank. One of the first banks in India to offer online banking and mobile banking services. |
| 7 | ICICI Bank | 1955 | Public sector bank. One of the largest banks in India and a pioneer in digital banking. |
| 8 | Kotak Mahindra Bank | 1985 | Private sector bank. One of the leading banks in India in terms of digital banking. |
| 9 | PhonePe | 2015 | Mobile payments and financial services company. One of the most popular mobile wallets in India. |
| 10 | Freecharge | 2010 | Mobile payments and financial services company. One of the first mobile wallets in India. |
Current Investment Trends in Fintech
There are many current trends in fintech that is boomimg rapidly. Some of tehm are as follows:-
1. Open Banking (or BaaS, Banking as a Service)
Open banking stands as one of the most prominent and exciting trends in the fintech industry today. This innovative concept enables the secure sharing of financial data and fosters collaboration among financial institutions, many tech companies and consumers by granting authorized third-party service providers access to their financial data, users can access personalized solutions like budgeting apps, investment platforms, and loan marketplaces.
2. Artificial Intelligence and Machine Learning
AI and ML stand out as major key trends in the fintech industry these are revolutionizing the way we approach to financial services and operations. Artificial Intelligence involves giving machines the ability to think and reason like humans, enabling them to carry out tasks that typically require human intelligence. On the other hand, Machine Learning is a specialized branch of AI that enables devices and systems to learn from data through algorithms, improving their performance without the need for explicit programming.
3. Internet of Things (IoT)
Internet of Things, or IoT, refers to the network of physical objects or “things’ equipped with internet connectivity, software, and sensors. Without human interference, these devices collect and exchange data in real-time and perform specific actions, including financial transactions, fraud detection, and credit scoring.
Future Trends of Fintech
As we know, making predictions about what awaits us in the future almost always leads to mistakes, but it is certainly important to try to understand where all these technological developments will lead in order not to be totally unprepared. Taking up a famous sentence from Confucius “Study the past if you want to predict the future”, we saw where the socalled FinTech era began, we saw some of its applications today and now we try to analyze what it will be, let’s go to foresee the future.
It is certainly evident that in the short term the solutions that will be developed will tend increasingly towards the effective seamless integration of the channels, the digitalization of the end processes, the continuous improvement of the user experience, up to the development of the banking marketplace thanks to the progressive spread of the banking APIs.
In the world of payments, we have already seen that great technological players such as Google, Apple, Facebook and Amazon have come into play and have done so both through internal developments and through direct investments in FinTech startups. This process is destined to continue and grow in the future to penetrate other sectors as well as payments and trading or P2P lending or Big Data. In other words, within the banking sector there will have to be considered with a much greater weight than even what happens today with new competitors coming from outside.
Rise of artificial intelligence (AI) and machine learning:
AI and machine learning are already being used in a variety of ways in the fintech industry and their use is only likely to increase in the future. AI can be used to automate tasks, improve decision-making, and personalize financial services in the industry.
The growth of open banking
Open banking is a new regulatory framework that allows third-party financial services providers to access customer data from banks and provide Opportunities for innovation in the fintech industry and it also allows fintech companies to develop new products and services that are more personalized and convenient for consumers.
Conclusion
In conclusion, the fintech industry is witnessing a revolutionary transformation, and the year 2023 holds immense promise for groundbreaking innovations. The top five trends discussed in this blog post showcase the power of fintech to reshape the financial services landscape and redefine the way we manage money.
The adoption of blockchain technology and cryptocurrencies is paving the way for decentralized financial systems, faster transactions, and enhanced security. As regulations become clearer, these digital assets are likely to become mainstream investment and payment options.
As we move into 2023 and beyond, the dynamic nature of the fintech industry will continue to drive innovation and shape the financial services landscape. Embracing these trends, financial institutions, tech companies, and consumers can harness the full potential of fintech to drive sustainable growth, financial empowerment, and a more inclusive financial ecosystem for all.
How does Fintech benefit consumers?
Fintech benefits to consumers by providing convenient, accessible, and personalized financial services. It also allows users to manage their finances to make transactions and invest with ease using digital platforms and apps.
What are the advantages of using Fintech apps for banking?
Fintech apps for banking offer real-time access to financial information, faster transactions, and the ability to perform banking tasks from anywhere at any time. They also often come with enhanced security features for protecting user data.
What is Open Banking?
Open Banking is a concept that allows customers to share their financial data securely with authorized third-party providers. This enables the development of new financial services and personalized solutions for customers.
Are robo-advisors better than human financial advisors?
Robo-advisors offer automated and cost-effective investment advice based on algorithms and user preferences. While they are suitable for many investors, some individuals prefer human financial advisors for more personalized guidance and complex financial situations.
How is AI used in Fintech?
AI is utilized in fintech for various purposes, including fraud detection, customer service through chatbots, credit scoring, risk assessment, and personalized financial recommendations.
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