What is a Fintech?

The term “fintech” was born out of the 2008 financial crisis, and essentially refers to a startup using technology to provide finance-related services. The scope of fintech has broadened over the years and now encompasses virtually all financial services players, from banks and insurance companies to peer-to-peer lending platforms or digital wallets.

Fintechs are software companies that have the flexibility of tech startups, but specialize in solving financial services problems. They are not established financial institutions like traditional banks or credit unions, but rather companies that use web and mobile technologies to provide innovative financial solutions to their customers.

Traditional financial institutions have always been slow to adapt to new technologies. They often work with outdated systems and platforms, making them inflexible and inefficient when it comes to developing new products and services.

What a fintech has over a traditional financial institution is agility. Fintechs do not have the same constraints as traditional financial companies, nor do they have to follow all the regulated rules within the banking industry. They focus on making their businesses more efficient and providing better customer experiences, specifically by adopting new technologies and achieving better customer returns through automation.

There are several categories of Fintechs:

– BtoC Fintech: these companies market their products and services directly to end consumers. The most common example is Paypal or Venmo.

– BtoB Fintech: these companies market their technologies to financial institutions that integrate them into their own products and platforms. These are startups like Ripple, or Plaid.

– BtoBtoC Fintech: a cross between the two categories above. These companies provide services to both consumers and financial institutions.

– Insurtech, in the insurance industry: these companies offer new or improved insurance products and/or services. Examples include insurance comparison sites, micro-insurance providers, peer-to-peer platforms.

– Regtech: these companies offer tailored technologies to help financial institutions comply with current regulations.

In short, fintech is the future of financial services. It will help automate services and improve the consumer experience, and its influence will continue to grow over the next five to 10 years. In some ways, fintech seeks to replace traditional financial services; in other ways, it seeks to improve them. Either way, fintech is a phenomenon that all businesses should keep an eye on, as it has the power to fundamentally transform industries and create entirely new businesses.