Throughout history, the financial industry as always found ways to evolve and adapt to the times in which it exists. The 1900s were characterized by the rise of banking titans in large merchant banks such as JP Morgan, Goldman Sachs, Bank of America and many other financial institutions. Customers would often have to enter a physical bank and speak to a banker in order to make any transactions. Fast-forward to 2022 and the financial landscape has changed drastically. People can now perform any financial transaction from the comfort of their home. Let’s explore the world of FinTech and why it is so popular.
What is FinTech?
FinTech is an abbreviation of the terms, financial technology. More than that, it is a word that represents the growing culture of technology being integrated into financial services. Financial technology has brought convenient solutions to the modern problems that customers and businesses face. The technology most used by FinTech companies are Artificial Intelligence(AI), machine learning, blockchain, robotic process automation(RPA) and big data. AI is used to bring automation to certain aspects of customer service as frequently asked questions. Machine learning uses statistical models to make predictions on financial behavior and the financial market. It is often used to build automated trading services and robotic advisors that make trading suggestions for their customers to follow. Blockchain is used to provide protection and allow for many funds to be transferred between clients seamlessly. RPA is mostly used in banking to automate time-consuming processes in order to increase productivity. A few examples of RPA is anti-laundering software used my banks to flag irregular financial activities. It is also used for card activation by verifying a customer’s identity and information. FinTech firms are companies that specialize in these technologies and use them to provide modern financial solutions. Now that we’ve gained a better understanding on what FinTech is, let’s take a at the major changes it has effected on the financial industry.
Most fintech companies recognized the transition into a cashless society and capitalized on the opportunity by providing payment solutions that would be relevant in a digital world. This meant allowing consumers to execute a digital transfer of funds between each other. It also meant being able to make digital payments to merchants in the most convenient way. Small businesses have benefited the most in this regard as it meant they will be able to receive payments from customers without having to install an expensive, physical payment system. Consumers are now able to make large payments without the risk associated with carrying a large amount of cash or the inconvenience of going to a physical bank. The most successful fintech companies specialize in this area and a few examples are PayPal, Stripe, Venmo and many others.
Investment and Banking
Technologies such as AI, machine learning and big data are mostly used in the area of investment and banking. A job that was mostly done by financial analysts, investment is now performed by automated systems that are able to track data and human behavior in order to derive information and make informed decisions based on that information. Companies such as Wealthfront and Betterment are the most popular robotic advisors. Technology has also granted consumers an easier access to the financial markets. Through companies like Robinhood, eToro, Coinbase and TradeStation, a person is now able to be an active participant in the financial market by buying a stock or financial instrument through those platforms. There are even dollar stocks under 1 for sale.
Although it is an emerging industry, Fintech continues to evolve at a rapid rate and it wouldn’t be a surprise to see a revolutionary fintech service in the near future.