Financial technology (Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services. At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, insurance, and investment management to name a few. Fintech also includes the development and use of cryptocurrencies such as Bitcoin.
Broadly, the term “financial technology” can apply to any innovation in how people transact business, from the invention of digital money to double-entry bookkeeping. Since the internet revolution and the mobile internet/smartphone revolution and its possibilities of creating interconnected, web-based and lean infrastructures, however, financial technology has grown explosively, and fintech, which originally referred to computer technology applied to the back office of banks or trading firms, now describes a broad variety of technological interventions into personal and commercial finance.
The most talked-about (and most funded) fintech startups share the same characteristic: they are designed to be a threat to, challenge, and eventually usurp entrenched traditional financial services providers by being more nimble, serving an underserved segment or providing faster and/or better service. In short, they disrupt the classic business models of the finance industry.
New technologies, like machine learning/artificial intelligence, predictive behavioral analytics, and data-driven marketing, will take the guesswork and habit out of financial decisions. “Learning” apps will not only learn the habits of users, often hidden to themselves, but will engage users in learning games to make their automatic, unconscious spending and saving decisions better. Fintech is also a keen adaptor of automated customer service technology, utilizing chatbots to and AI interfaces to assist customers with basic task and also keep down staffing costs.
Regulation is one of the main concerns regarding fintech. As financial services are among the most heavily regulated sectors in the world, new technologies and their integration into financial services processes have seen a plethora of regulatory challenges. In some instances, the problems are a function of technology itself. In others, they are a reflection of the tech industry’s impatience to disrupt finance. For example, automation of processes and digitization of data makes fintech systems vulnerable to attacks from hackers. There have also been instances where the collision of a technology culture that believes in a “Move fast and break things” philosophy with the conservative and risk-averse world of finance has produced undesirable results, going as far as (willingly or unwillingly) breaking existing laws. Regulation of cryptocurrencies will be one of the major upcoming challenges for law-makers in the near future, so much so that in fact the US-American Library of Congress keeps tab on different ways to regulate cryptocurrencies in the world—interestingly sparing out the state of affairs in the USA themselves.