What is fintech? It is a relatively new term that even some of the more experienced investors don’t have a clue as to what it is or what it is about. It is something that you can hear media outlets and technology groups talk about. However, it is a word that a lot of investors don’t have a handle on. One thing is for certain though is that it is something that affects all aspects of society, and how people do business.
So, what is fintech? By definition, it is a term that is often applied to a segment of the technology startup industry that involves money transfers, fundraising, mobile payments, loans, and asset management. It is the abbreviation for financial technology, and its application encompasses several business segments. A lot of fintech companies use mobile technologies, analytics, and big data to develop products targeting different sectors.
Fintech uses technology to provide better financial services and sometimes in a highly disruptive manner. It changes how companies interact with their customers. And because of the proliferation of fintech, it brings lots of positive effects on society in general, which include lower prices paid by customers, wider access to financial services, and increased competition. A major focus of recent has been to push towards providing financial services to the unbanked. A large number of start up have come up with innovative way with which to bring general services to the poorest of the poor in order to enrich their lifes.
After learning what fintech is, the next thing you need to know is who uses it. Both traditional and startup financial companies are actively utilizing fintech. Most of the startups don’t look like traditional insurance companies or banks. They usually provide targeted solutions, instead of the one-stop-shop business model of traditional financial institutions. Most of the startups are based in tech hubs across the globe such as New York, San Francisco, London, Singapore, and Berlin. They employ people with non-financial skillsets, such as engineering, IT, or computer science. Traditional financial institutions invest in fintech and integrate it into their existing services. Others invest in fintech startups or start their own fintech incubators.
The regulation of fintech startups is the subject of many debates. The problem is that some people who don’t know what fintech is are the ones wanting to control it. Keep in mind that startups don’t operate like a full-service bank or any other financial institution, and that’s the reason why they are not subject to the same rules and regulations that govern the traditional institutions. In many cases, startups and the technology they have developed skirt the parameters of the rules which govern regulated products, as such, regulators are often left with the hard task of deciding what is a regulated product and what is not.
Only time can tell as to when policymakers can understand what is fintech, and how the startups operate. And when that time comes, expect fintech startups to be heavily regulated just like other financial service providers.