Fintech 101: How Technology is Revolutionizing Finance

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What is Fintech?

Fintech companies primarily rely on technology and cloud service, minimizing physical location to provide financial services and support to their customers. The first fintech company was founded in 1918 in the United States, the company was called Fedwire. Even though the first fintech company was created in 1918, most companies were launched around the 2000's and started raising funds in 2010. In today's world, there isn't such a thing as a “typical fintech company” because they can contain various sectors. Some examples include start-ups, growth companies, banks, non-bank financial institutions, and cross-sector firms.

How Fintech is Changing Traditional Finance

Fintech has been changing the traditional finance market all around the world, due to its increased growth over the past few years. The first thing that fintech companies have changed is the increased accessibility for people to be able to reach their financial services online. Another thing they were able to change is better customer service and experience. Through the use of innovation, these fintech companies have been able to provide 24-hour service to their users and provide personal experiences to make users more engaged. 

Another change caused by fintech is the more efficient payment solutions for customers. This has allowed massive changes in the traditional market because people were used to having to carry their wallets everywhere, but now they just need to carry their smartphones where inside they have their digital wallet and money. 

These changes made by fintech companies will continue to develop into the future as these companies expand and grow across the market.

Key Innovations in Fintech

Throughout the past years, fintech companies have created key innovations and developed previous innovations which has allowed the financial market to continue to grow and expand into new markets. As mentioned previously, there isn't a typical fintech company; this idea has allowed the development of innovations in the financial market and has benefited fintech companies. Some examples of key innovations are:

• Payment solutions

  • Fintech companies have revolutionized methods of payment across the world and have made it easier than ever to purchase items

  • Some examples of this are digital wallets (Apple Pay & Google Pay), peer-to-peer payments (Venmo, PayPal, Cash App), and real-time payments (instant transfers between accounts)

  • Another example of a payment solution that has become popular in Brazil is Pix, where you can purchase items anywhere through a QR code or a generated code

    
    

• Artificial Intelligence

  • Recently, financial companies have increased the use of artificial intelligence to complete and improve various tasks

  • Some examples of the use of AI include fraud detection and prevention, customer service, and credit scoring

    
    

• Blockchain

  • Blockchain technology enables secure, transparent, and decentralized transactions

  • Blockchain has disrupted areas like payment, supply chain, and record-keeping

    
    

• Gamification

  • Gamification is when a company makes saving and learning about money more enjoyable for the user

  • An example of this can be reward points and also a system, where users can unlock certain rewards and benefits by saving or learning about money

    
    

• Regtech

  • Regtech uses technologies to allow companies to comply with regulations efficiently

  • Some examples of this are automating transaction monitoring, risk management, and compliance reporting

    
    

• Inclusion Technologies in the Financial Industry

  • Inclusion of technologies is when companies make service more accessible and efficient for everyone using technology

  • Some examples are accessing savings and credit, transferring money, and paying for goods and services

    
    

All of these key innovations have allowed for massive growth across the financial market for the past few years, even though some innovations have been used for quite some time and others are more recent.

Opportunities and Challenges in Fintech

In the financial sector, fintech companies have allowed for a plethora of diverse opportunities, but with these opportunities also come different challenges. Fintech has caused a huge increase in the amount of opportunities available. For example:

• Market structure and maturity: The organization of the market is defined by factors such as the number and size of companies, competition, and ease of entry and exit. The maturity of the market is when the market starts to slow down its growth and it becomes stable.

• Access to capital: This is the ability of a person or a group of people to obtain funds for their investments, grants, and venture funding.

Even though fintech has provided multiple opportunities in the market it has also provided some challenges. For example: 

• Reaching scale and profitability: This causes companies to not be able to reach their customers due to the lack of infrastructure.

• Managing Scarcity: Funding can start slowing down for fintech companies and they can't allow that to happen or else they will lose the progress that they have built.

• Building foundation: Fintech companies need to have a strong corporate structure because this will allow them to be able to provide stability, clarity, and direction. With this strong corporate structure, fintech companies will be able to provide all of these things even when they are passing through a point of difficulty.

  
  

This allows us to view how fintech companies have provided multiple different opportunities but also provided multiple different challenges.

 The Future of Fintech

Fintech companies have been able to grow inside the market and with that growth, they were able to improve and also introduce new types of innovation to continue this growth. The two main innovations that will drive the growth of fintech in the future are artificial intelligence and blockchain. These two innovations will allow companies to continue to grow and develop to become faster and more efficient, but with that, these innovations will also impact multiple areas as fintech companies continue to grow.

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Works Cited

André, Michel. "Lessons from the History of FinTech." Forbes, 24 July 2023, www.forbes.com/councils/forbestechcouncil/2023/07/24/lessons-from-the-history-of-fintech/.

"Europe's Fintech Opportunity." Mckinsey and Company, 26 Oct. 2022, www.mckinsey.com/industries/financial-services/our-insights/europes-fintech-opportunity.

"5 Soluções Digitais Para Fintechs." GVP Digital, Dec. 2021, gvp.com.br/blog/5-solucoes-digitais-para-fintechs/. Accessed 26 Oct. 2024.

McKinsey & Company. "What Is Fintech?" McKinsey and Company, 16 Jan. 2024, www.mckinsey.com/featured-insights/mckinsey-explainers/what-is-fintech.