Fintech has been a popular term in the last five years or more. However, not everybody knows what exactly fintech means and what its products and services look like, or who they are meant for.
For us, answering the burning fintech questions is easy. We’re living and breathing fintech on this website, particularly the digital banking side of fintech. Digital banks are arguably its most important product that’s set to disrupt the world of finance, banking, and beyond.
So, without further ado, here are the fintech questions everyone is asking, and their answers are written in plain English.
What Is Fintech?
Fintech or FinTech is an abbreviation of financial technology. An established company or startup will use software and innovation to compete against and challenge traditional players, such as banks, lenders, investing companies, brokers, and finance in general.
Fintech companies are looking to disrupt the traditional ways of doing business in these key aspects by making products and services that are easy to signup for, that are free or much cheaper, mobile, offer better terms, and are generally much more convenient and suitable for modern times.
What Is An Example Of Fintech?
This website is dedicated to digital and mobile banks; therefore, I’ll show you a fintech example using digital banking.
Although there were a handful of online banks in the early 2000s that enabled people to use the internet to do some clunky banking without going to a branch, digital banking didn’t really take off until around 5-7 years ago.
We can say that smartphones contributed to the rise of fintech and digital banks, and we’d be right. Without smartphones, there would probably be far fewer fintech companies and applications around.
Cash App in the United States and Revolut in Europe are excellent examples of fintech companies using technology to disrupt banking, investing, money transfers, payments, etc.
Because they didn’t have banking licenses, they had to work with existing banks by using the BaaS model. That way, a fintech company can enter the banking industry without itself having a banking license.
Revolut eventually got a UK and EU banking license and could outright offer even more financial services.
These two fintech companies have tens of millions of users and have, together with other digital banks, disrupted the stale banking industry.
READ ALSO: Fintech Vs. Digital Banking (With Examples)
What Are The Four Key Areas Of Fintech?
The four key areas of fintech are considered to be:
- Artificial intelligence
- Blockchain
- Cloud Computing
- Big Data
A handy acronym for this is ABCD, and it’s an impressive list of cutting-edge technologies that few people truly understand, yet, they’re utilized in the backend to usurp the traditional financial system and make our lives easier.
If you applied for a loan or mortgage recently or used a digital banking app, most, if not all, of these technologies were used in the background to fulfill the tasks.
Digital and traditional banks heavily rely on big data and artificial intelligence to analyze the applicant’s behavior and financial history, as well as their online footprint, social media, and much much more.
We are basically living in a sci-fi movie, and most people aren’t even aware of the fact.
What Are The Challenges Of Fintech?
As with any industry, there are countless challenges ahead. However, fintech seems to have even more challenges due to its disruptive nature.
Not only do the fintech companies have to secure enough funding if they’re starting from scratch, but they also need to find a gap in the ever-competitive market.
Complying with government regulations is next, as well as designing the product, either from scratch or, more commonly, by getting on a Saas or BaaS platform.
Once they have launched, they have to attract new users and work out the kinks in the user interface and the system as a whole. Protecting sensitive user data is also one of the main challenges in today’s world, ripe with scammers, hackers, and ransomware.
Lastly, satisfying the investors by going public and getting a potentially huge payday are also top of mind for most founders.
Luckily, it seems that profitability isn’t such a concern in fintech as investors are happier seeing the future potential of the fintech (or tech in general) company than short or long-term profitability.
READ NEXT: 5 Great Examples of Banking as a Service (2022)
What Is The Biggest Fintech In The World?
Stripe, that’s dual-headquartered in San Francisco, the United States, and Dublin, Ireland and Ant Group from Hangzhou, China are two of the largest fintech companies in the world.
Valuations keep changing for the two well-known fintech behemoths. Both actually saw their valuations falter, and Ant’s even took a nosedive after a failed IPO in 2020.
Stripe’s valuation, as of 2022, is $74 billion. The company was valued at $95 billion before the internal value of its shares was slashed by 28%.
Ant had an incredible valuation of $280 billion pre-IPO, which was based on its stock pricing. However, the manifold regulations imposed over the past two years slashed its valuation to a fraction of that.
For instance, Fidelity Investments cut its valuation estimate to around $78 billion last year (from $235 billion). In June, Bloomberg Intelligence analyst estimated that Ant is worth about $64 billion.
Stripe, Inc. is an Irish-American financial service and SaaS company that predominantly offers payment processing software and APIs for e-commerce websites and mobile applications. This fintech alone, processed more than $640 billion in payments in 2021.
Ant Group, formerly known as Ant Financial, is an affiliate company of the Chinese conglomerate Alibaba Group that owns the world’s largest digital payment platform Alipay, which serves over 1.3 billion users and 80 million merchants.
Why Fintech Is The Future?
Financial technology is the future of banking, lending, investing, and finance in general. There are hundreds of fintech startups cropping up each year in the bid to become the next big thing.
With an excellent product, business plan, and proper investing, many of them have a real chance of succeeding.
The market is hungry for innovative financial products that make life easier for its users and make good money for investors and founders alike.
Fintech, together with smartphones, brings financial services even to the most remote parts of the world, bringing tens of millions of people their first banking, lending, or other financial product.
A revolution is happening in developed and undeveloped parts of the world where people are opening their first bank accounts, not in a traditional bank that is often inaccessible or won’t take them aboard, but with a digital bank that is free of charge and open to anyone.
Micro, small, and medium businesses worldwide were also touched by this, as it’s easier than ever to open a bank account or get a loan.
The traditional gatekeepers are losing their influence, and fast!
Will Fintech Replace Banks?
Although fintech companies are on the rise, it’s unlikely that they will completely replace traditional banks anytime soon. Or ever, for that matter.
Incumbents have been around for hundreds of years, in some cases, and have built up a level of trust that no startup will dethrone in the near future.
People that have a lot of assets won’t trust fintech companies that have been around for less than ten years. They’ll keep their money and do other business with brick-and-mortar banks. They will use a mobile banking app, but it will belong to their old bank.
On the other side, millions of Gen Z and millennials are trusting digital banks and are using them to store at least some of their money and using them daily to transfer funds, split bills, shop, etc.
As they grow older and hopefully earn more money and have more assets, will they continue doing so, or will they start using a traditional bank because it’s deemed safer? Only time will tell.
Conventional banks won’t go out without a fight. Most of them already offer online, and mobile banking and are modernizing their systems as well as financial products and services.
Attracting the younger demographic will prove to be difficult with their current offering. That’s why they’re also launching separate mobile banks targeted at younger people with a simpler interface and fewer products that mimic popular digital banks.
Entering the banking space has never been easier, and we’ll only be seeing more digital banks appear every year in a bid to earn at least a couple of million customers locally or globally.
Is A Fintech Business Usually A Start-Up?
Start-ups are generally online or tech-oriented businesses that can easily reach a large market. Fintech companies, therefore, usually begin as start-ups.
Fintechs start on a local level but often move to a global level to acquire even more users. Although that’s more difficult due to various regulations in specific markets, it isn’t impossible if you throw a lot of money into it.
Start-up companies in the fintech space acquire investors with relative ease as the market is still wide open and a craving for more fintech products. That’s why there’s no shortage of fintech start-ups, as almost any of them could become the next big thing, at least in the local markets.
READ ALSO: The Future Of Digital Banking (Five Likely Outcomes)
What Are Some Of The Possible Products For A Fintech Company?
There are many products that a fintech company could focus on. However, digital banks and mobile payment apps are arguably the most popular products of aspiring fintech companies.
It’s no surprise. The pandemic accelerated the adoption of mobile banking and mobile payments more than anything else really could. Governments around the world themselves scrapped physical checks in favor of mobile payments, and that alone made millions of people open their first digital bank account or even a bank account in general.
There are other use cases, of course.
Insurtech has seen a boom in recent years, where technology is improving the efficiency of existing and aspiring insurance companies. It’s redefining the customer journey by shortening lengthy processes, including underwriting, claims processing, and more.
Although cryptocurrencies are in a bad place at the moment, with their values crashing almost overnight and because of numerous scams and frauds costing millions of people their money, they’re another example of fintech.
Investing and trading stocks also got adopted by millions more because fintech companies such as Robinhood made it possible for everyday people to invest in fractions of shares without paying a commission.
What Is The Most Used Fintech Service?
According to a report, 88% of Americans use some kind of fintech app to manage their financials. That’s more people using fintech than they do video-streaming subscriptions (78%) and social media (72%).
The same research showed that digital banking and bill payments were the most dominant uses of fintech, while savings and investing apps were the fastest-growing fintech services.
Conclusion
We have answered ten of the most requested questions about fintech and the fintech industry, as well as digital banking.
This should help you understand what fintech is, as the examples we presented are pretty straightforward and based on real companies from the US and worldwide.
Although fintech can be confusing to people first encountering it, once you dig a bit deeper, you realize that it’s cut and dry and easy to comprehend.
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