Whether you realize it or not, you’re likely already familiar with “fintech,” short for “financial technology.”
Have you used a banking app? What about Venmo or PayPal? Have you ordered food on your phone?
All of these functions use fintech, a rapidly growing technology that’s poised to shake up the financial system in years to come. But how exactly does fintech work? And how will it affect how we bank ten years from now?
Here we’ll lay out the basics of this new technology and why it’s a buzzword for 2019.
How Fintech Works
In its simplest form, fintech refers to any technology that streamlines banking processes. This could be transferring money on a banking app, sending money to friends through Venmo, or using your phone to pay for a morning coffee.
These days we think of fintech as predominately being an app on our phone that allows easy payments. But fintech has been developing for more than six decades, starting with the advent of credit cards and ATMs. As technology advanced, we began to see the role computers could play in the financial world.
Examples of fintech, old and new, include:
• Credit and prepaid cards
• Online banking
• Mobile payment apps
• Crypto currencies
• Digital crowdfunding
• Online payment methods
• Robo Advisors
So, if fintech has been around for more than half a century, why are we just now hearing about its potential to disrupt the industry?
What differentiates current fintech from earlier advancements is this new technology is not just assisting in the banking world, but rather potentially replacing the traditional banking model.
For example, why head to the bank to transfer funds when you can do so on your mobile app? Why pay top dollar for financial planning services when you can access a robo-advisor for a fraction of the cost?
Fintech and its relationship with the conventional banking system emphasizes a similar push-and-pull we’re seeing in a number of sectors affected by up-and-coming technology. Will the new model completely replace the old one?
It’s too simplistic to say that fintech will completely overrun banks. Rather, it’s likely that fintechs and traditional banks will work together in the coming years to create better services for clients.
The fintech-bank relationship is symbiotic in a number of ways. For instance, fintechs have the automation that makes customers happy, while traditional banks already have a loyal customer base that fintechs can work with.
Banks also have the regulatory experience and financial background that most fintechs don’t. On the other hand, fintechs realize what a new generation of financial clients want, and can help banks raise profit.
By combining their assets, fintechs and banks can pave the way for a streamlined banking experience in the 21st century and beyond.