Spread the love

Financial technology (abbreviated fintech) refers to new technology that aims to improve and automate the delivery and usage of financial services. Fintech, at its heart, is used to assist corporations, company owners, and consumers in better managing their financial operations, procedures, and lives. It is made up of specialized software and algorithms used on computers and smartphones. The term “fintech” is an abbreviation for “financial technology.”

When the word “fintech” first appeared in the twenty-first century, it was initially used to the technology used at the backend systems of established financial organizations such as banks. There was a move to consumer-oriented services between 2018 and 2022. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management, to name a few.

Fintech also includes the development and use of cryptocurrencies, such as Bitcoin. While that segment of fintech may see the most headlines, the big money still lies in the traditional global banking industry and its multitrillion-dollar market capitalization.

What is Financial Technology?

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, financial technology has grown explosively.

You likely use some element of fintech on a daily basis. Some examples include transferring money from your debit account to your checking account via your iPhone, sending money to a friend through Venmo, or managing investments through an online broker. According to EY’s 2019 Global FinTech Adoption Index, two-thirds of consumers utilize at least two or more fintech services, and those consumers are increasingly aware of fintech as a part of their daily lives.

Let’s take some examples:

Fintech in Practice

The most talked-about (and most funded) fintech startups share the same characteristic: They are designed to challenge, and eventually take over, traditional financial services providers by being more nimble, serving an underserved segment of the population, or providing faster or better service.

For example, financial company Affirm seeks to cut credit card companies out of the online shopping process by offering a way for consumers to secure immediate, short-term loans for purchases. While rates can be high, Affirm claims to offer a way for consumers with poor or no credit a way to secure credit and build their credit history.

Similarly, Better Mortgage seeks to streamline the home mortgage process with a digital-only offering that can reward users with a verified pre-approval letter within 24 hours of applying. GreenSky seeks to link home improvement borrowers with banks by helping consumers avoid lenders and save on interest by offering zero-interest promotional periods.

Read Also: What Are Cost And Costing Models in Companies?

For consumers with poor or no credit, Tala offers consumers in the developing world microloans by doing a deep data dig on their smartphones for their transaction history and seemingly unrelated things, such as what mobile games they play. Tala seeks to give such consumers better options than local banks, unregulated lenders, and other microfinance institutions.

In short, if you have ever wondered why some aspect of your financial life was so unpleasant (such as applying for a mortgage with a traditional lender) or felt like it wasn’t quite the right fit, fintech probably has (or seeks to have) a solution for you.  

Fintech’s Expanding Horizons

In its most basic form, fintech unbundles financial services into individual offerings that are often easier to use. The combination of streamlined offerings with technology allows fintech companies to be more efficient and cut down on costs associated with each transaction.

If one word can describe how many fintech innovations have affected traditional trading, banking, financial advice, and products, it’s “disruption”—a word you have likely heard in commonplace conversations or the media. Financial products and services that were once the realm of branches, salespeople, and desktops are now more commonly found on mobile devices.

For example, the mobile-only stock trading app Robinhood charges no fees for trades, and peer-to-peer (P2P) lending sites like Prosper Marketplace, LendingClub, and OnDeck promise to reduce rates by opening up competition for loans to broad market forces. Business loan providers such as Kabbage, Lendio, Accion, and Funding Circle (among others) offer startup and established businesses easy, fast platforms to secure working capital. Oscar, an online insurance startup, received $165 million in funding in March 2018. Such significant funding rounds are not unusual and occur globally for fintech startups.

This shift to a digital-first mindset has pushed several traditional institutions to invest heavily in similar products. For example, investment bank Goldman Sachs launched the consumer lending platform Marcus in 2016 in an effort to enter the fintech space.

That said, many tech-savvy industry watchers warn that keeping apace of fintech-inspired innovations requires more than just ramped-up tech spending. Rather, competing with lighter-on-their-feet startups requires a significant change in thinking, processes, decision-making, and even overall corporate structure.

Fintech and New Technologies

New technologies, such as machine learning/artificial intelligence (AI), 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 but also engage users in learning games to make their automatic, unconscious spending and saving decisions better.

Fintech is also a keen adapter of automated customer service technology, utilizing chatbots and AI interfaces to assist customers with basic tasks and keep down staffing costs. Fintech is also being leveraged to fight fraud by leveraging information about payment history to flag transactions that are outside the norm.

Fintech Landscape

Since the mid-2010s, fintech has exploded, with startups receiving billions in venture funding (some of which have become unicorns) and incumbent financial firms either snatching up new ventures or building out their own fintech offerings.

North America still produces most of the fintech startups, with Asia a relatively close second, followed by Europe. Some of the most active areas of fintech innovation include or revolve around the following areas (among others):

  • Cryptocurrency (Bitcoin, Ethereum, etc.), digital tokens (e.g., non-fungible tokens, or NFTs), and digital cash. These often rely on blockchain technology, which is a distributed ledger technology (DLT) that maintains records on a network of computers but has no central ledger. Blockchain also allows for so-called smart contracts, which utilize code to automatically execute contracts between parties such as buyers and sellers.
  • Open banking is a concept that proposes that all people should have access to bank data to build applications that create a connected network of financial institutions and third-party providers. An example is the all-in-one money management tool Mint.
  • Insurtech seeks to use technology to simplify and streamline the insurance industry.
  • Regtech seeks to help financial service firms meet industry compliance rules, especially those covering Anti-Money Laundering and Know-your-customer protocols that fight fraud.
  • Robo-advisors, such as Betterment, utilize algorithms to automate investment advice to lower its cost and increase accessibility. This is one of the most common areas where fintech is known and used.
  • Unbanked/underbanked services that seek to serve disadvantaged or low-income individuals who are ignored or underserved by traditional banks or mainstream financial services companies. These applications promote financial inclusion.
  • Cybersecurity. Given the proliferation of cybercrime and the decentralized storage of data, cybersecurity and fintech are intertwined.
  • AI chatbots, which rose to popularity in 2022, are another example of fintech’s rising presence in day-to-day usage.

Fintech Users

There are four broad categories of users for fintech:

  • Business-to-business (B2B) for banks
  • Clients of B2B banks
  • Business-to-consumer (B2C) for small businesses
  • Consumers

Trends toward mobile banking, increased information, data, more accurate analytics, and decentralization of access will create opportunities for all four groups to interact in unprecedented ways.

As for consumers, the younger you are, the more likely it will be that you are aware of and can accurately describe what fintech is. Consumer-oriented fintech is mostly targeted toward Gen Z and millennials, given the huge size and rising earning potential of these generations.

When it comes to businesses, before the adoption of fintech, a business owner or startup would have gone to a bank to secure financing or startup capital. If they intended to accept credit card payments, they would have to establish a relationship with a credit provider and even install infrastructure, such as a landline-connected card reader. Now, with mobile technology, those hurdles are a thing of the past.

What Are The Risks And Opportunities in Financial Technology?

The fintech industry is one of the world’s fastest expanding. And not without reason. Companies like Bankingly use technological innovation to help traditional banks, cooperatives, and microfinance institutions compete more effectively. SMEs are benefiting in other industries as well. However, there are hazards and opportunities, as with any new industry. We’ll look at a few of them.


Regulations: Fintech is subject to the same regulatory risk as banking. However, laws have not kept pace or are not comprehensive. For, example, online lenders, deposits, and digital wallets are not subject to the same stringent regulations and safety nets as traditional banks. It gets trickier as fintech deals with funds, data, and users’ privacy across jurisdictions.

While regulations vary from country to country, there are general principles that all must abide by. For example, most jurisdictions require a specific license and compliance with anti-money laundering (AML) and KYC to prevent financial crimes.

If a fintech company (unintentionally) violates any laws, runs afoul of government regulations, and fails to comply, that can lead to hefty fines.

Many also have similar technology stacks (programming languages, frameworks, databases, and APIs) and may share similar vulnerabilities; they are reliant on a few large cloud service providers, mobile platforms (Android and iOS), and payment processors (90% rely on Visa and MasterCard) or few social media channels thereby creating weak links and single points of failure. While the infrastructure is reliable (up to 99.99% availability), any outage, data breaches, or security risks that do occur can impact them.

Funding: Most fintech growth is fueled and subsidized by easy-flowing venture capital. In 2021, fintech accounted for $130 billion in funding, making it the leading sector. The mindset of growth now, profits later at any cost, is not sustainable.

VC funding to fintech is falling. Data from CB Insights shows a 48% drop to $4.4 billion now versus the same time in Q1 2021. Now many fintech, especially consumer-facing ones, are encountering lower investor appetite amid higher interest rates and inflation following heavy spending to meet Covid demand. As a result, VC funding across the board is returning to pre-pandemic levels of “normal.”

After years of rapid growth, investors are getting impatient and are expecting returns. This is evident as valuations have reduced or taken a beating in the public markets, with market caps dropping by as much as 80%. This can create a slump in growth and entry of new players.

Data security risks: Due to an over-reliance on cutting-edge tech and the processing of sensitive financial data, fintech is often targeted for cyberattacks. This is a double-edged sword because while tech can help them scale, it can also be a source of disruptions and outages.

Outages/downtime can lead to lost business if customers can’t access services. Accenture found that fintech firms are more likely to be targeted than traditional financial institutions. For example, if a fintech company falls victim to a data breach and customer data is compromised, the reputational damage and loss of user trust are disastrous for businesses.

Inherent Risks: It’s likely majority of fintech startups, which are undercapitalized, and inefficient with weak business models and high burn rates (spending), will close. This is not unique to fintech but across industries. About 90% of startups fail – 10% within year one; 70% close during years 2-5 of inception. 42% of startups fail due to misreading market demand and poor timing. The second reason (29% of cases) is running out of funds or lack of or lesser funding.

It can be argued that it’s common for any industry. A few failures don’t mean that the industry is doomed; after all, many traditional companies have also gone bust, merged, or consolidated. In context, the dot-com bubble burst in 2000, but the industry has grown and grown stronger.


Financial Inclusion: One of the biggest opportunities is tapping into huge markets that traditional banks neglected or could not serve. Financial inclusion can help over 1.5 billion unbanked and hundreds of millions of underbanked.

There’s also a new generation of customers (Gen Y, Millennials, Alpha) now aged between 10 to 40, with different approaches to managing their finances and prefer fintech.

80% of the world’s economy is SMEs, micro-enterprises that need a bank account, insurance, and easier access to credit but are overlooked – fintech is already helping millions of them.

Technology: Fintech companies can also take advantage of new technologies or create them. For example, AI is being used to develop chatbots to provide customer support or give financial advice; Big Data to analyze massive untapped data to offer personalized products; Blockchains to create digital ledgers and smart contracts that are more secure and transparent.

Market Potential: In emerging markets with limited, aging financial infrastructure and outdated business models, fintech has vast potential. In Latin America, Africa, and Asia, fintech is driven by the need to resolve serious macro-issues that increase financial and digital inclusion.

LatAm fintech startups raised $2.8 billion during those 3 months ending March 31 – the fourth largest quarter on record. IDB Invest and Finnovista estimate the fintech ecosystem grew 112 % from 2018-21. Fintech is now Africa’s fastest-growing sector and made up 61% of the $2.7 billion of funds deployed in 2021. This bucks the trend in some markets.


The financial technology industry has its share of growing pains. However, the opportunities outweigh the risks. There’s no doubt fintech will evolve and is here to stay. Customers will always prefer something that offers a better, affordable experience –from fintech or traditional banks that adapt to provide them. The market simply follows them.

About Author


MegaIncomeStream is a global resource for Business Owners, Marketers, Bloggers, Investors, Personal Finance Experts, Entrepreneurs, Financial and Tax Pundits, available online. egaIncomeStream has attracted millions of visits since 2012 when it started publishing its resources online through their seasoned editorial team. The Megaincomestream is arguably a potential Pulitzer Prize-winning source of breaking news, videos, features, and information, as well as a highly engaged global community for updates and niche conversation. The platform has diverse visitors, ranging from, bloggers, webmasters, students and internet marketers to web designers, entrepreneur and search engine experts.