“Fintech” might sound complicated, but it’s just an abbreviation for “financial technology.” This refers to the various ways technology is used to deliver and improve financial services.
Digitalization–the movement of information and services to a digital format–has exploded over the last few years, and fintech is no exception. For that reason, the effect of digital acceleration on financial technology is worth understanding for consumers and providers alike.
What is Fintech?
Financial technology, or fintech, refers to a broad array of financial activities. This can include things like digital banking, such as using an app to transfer money and deposit checks on your phone. Similarly, a significant aspect of fintech is “neobanks,” which act as completely digital banks and payment services that don’t have a physical location, such as the popular Venmo. It also includes digital budgeting and money-management apps, such as Mint. Another trending example of fintech is cryptocurrency. Accelerating digital transformation in banking has also increased automated customer service technology, like chatbots and AI, which have become a huge element of many businesses.
The Opportunities of Fintech
The impact of fintech on banks is both a challenge and a vast opportunity to improve customer satisfaction by offering increased digital banking options that are more and more popular, especially among younger customers. Fintech has also created endless opportunities for new businesses to fulfill consumers’ wants and needs in creative ways. Venmo and PayPal have created a much simpler way to send and receive payments, budgeting apps make it much easier for consumers to effectively manage their money, digital investment platforms greatly simplify such a complicated process – and those are just a few examples.
For consumers, financing and its various elements is a necessary evil that fintech is making simpler and cheaper. Thanks to the accelerating digital transformation of banking, the days of frequent and time-consuming trips to your bank are in the past when almost all your financial tasks can be accomplished online or with an app.
The Challenges of Fintech
Of course, most things “new and improved” have some drawbacks, too.
By their very nature, the recent developments and startups like Venmo and neobanks are meant to replace the more traditional financial institutions, like physical banks. For those classic businesses that have long held power over the financial realm, hard days are coming, especially if they don’t adapt. Digital acceleration in business became even more vital since the strike of COVID-19.
To survive, banks will need to change a great deal. For most customers, a decent website isn’t enough. Apps and mobile-friendly platforms are the expectations, and many banks are failing to meet them. Perhaps even more challenging, AI is revolutionizing every aspect of business, and organizations that fail to utilize it might find themselves swimming upstream. However, the integration of these new technologies is both complicated and expensive.
But there are challenges for these growing usurpers, too. Finances is a highly regulated industry. After all, there’s a lot of money at stake. As these financial services and their technologies expand, more regulatory problems are popping up.
The exciting new world of cryptocurrency is a perfect example. Thanks to its entirely digital nature and its lack of central or government authorities, it’s at a particularly high risk of scams and fraud. As the world capitalizes on the results of digital acceleration, some also learn how to abuse it.
Beyond cryptocurrency, other financial businesses become more vulnerable to hacking the more they turn to automation and digitization. Data security is a top concern as fintech grows.
Fintech is here, and there’s no stopping it now. It’s only one piece of an ever-growing machine driven by digital acceleration. Financial businesses will benefit greatly by learning all they can and implementing new technologies that improve user experience. Consumers want convenience and ease, and companies will have little choice but to deliver. The impact of fintech on banks cannot be ignored.
Though it poses difficulties for many financial institutions, especially more traditional players, fintech is opening up endless new opportunities that outweigh the costs. Not only can businesses–championed by successful recent startups–reap the benefits, so can consumers. Financial chores that used to require a trip across town can now be done from your couch.