What is Fintech (Financial Technology)?
The term fintech refers to the synergy between finance and technology, which is used to enhance business operations and delivery of financial services. Fintech can take the form of software, a service, or a business that provides technologically advanced ways to make financial processes more efficient by disrupting traditional methods.
Some of the most prominent applications of fintech are mobile payments, automated investment apps (robo-advisors), cryptocurrency, online lending businesses, and crowdfunding platforms.
Technologies that Contribute to Fintech
1. Artificial Intelligence (AI) and Machine Learning (ML)
Artificial Intelligence (AI) and Machine Learning (ML) are some of the most used technologies in fintech, offering the potential to play an even bigger role in the finance industry as developments continue. Some of the fintech applications of AI and ML include credit scoring, fraud detection, regulatory compliance, and wealth management, among others.
2. Big Data and Data Analytics
Data from customers and markets is of high value to fintech companies. Through large datasets, information about consumer preferences, spending habits, and investment behavior can be extracted and used to develop predictive analytics.
Predictive analytics refers to predicting how consumers are likely to behave using past information and a mathematical algorithm. The collected data also helps in formulating marketing strategies and fraud detection algorithms.
3. Robotic Process Automation (RPA)
Robotic Process Automation (RPA) refers to the process of assigning manual, repetitive tasks to robotics instead of humans in order to streamline workflows in financial institutions. The most widespread applications of RPA in finance are:
- Statistics and data collection
- Regulatory compliance management
- Communication and marketing through e-mails and chatbots
- Transaction management
Blockchain technology is being adopted at a large scale in the financial industry, primarily due to its capability to securely store transaction records and other sensitive data. Each transaction is encrypted, and the chances of successful cyber-attacks are relatively low when blockchain technology is employed. Blockchain technology is also the backbone of many cryptocurrencies.
Applications of Fintech
1. Crowdfunding Platforms
Crowdfunding platforms like Kickstarter, GoFundMe, and Patreon are the result of developments in fintech. The platforms allow entrepreneurs and early-stage businesses to raise funds from all over the world, allowing them to bypass geographical boundaries and reach international markets and investors.
2. Mobile Payments
Mobile payment applications and gateways are one of the most prevalent uses of fintech. Such applications allow users to carry out banking activities without physically visiting a bank. For example, companies like Venmo and Interac allow customers to send and receive money through smartphones at minimal transaction fees.
Robo-advisors are online investment management services that use algorithms to optimally allocate assets and generate portfolios for customers. They allow users of all age groups to engage in investment activities at low fees with minimal manual effort.
The term insuretech refers to the application of technology to the insurance model, which allows companies to provide tailored insurance services and data security. Insuretech helps streamline the insurance process through online claims filing and policy management.
Regtech (regulatory technology) focuses on the automation of compliance processes for financial institutions. It offers fast and cost-effective management of large amounts of data, including transaction records and compliance documents, such as corporate tax returns.
CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful: