Types of Fintech. Among the many technological developments that have recently attracted interest around the globe, fintech stands out. Many of you probably think of fintech as a revolutionary new technology that has the potential to reshape the financial services industry. Users of financial services do not perceive fintech as some foreign technology, but the assumption is somewhat correct.
A lack of clarity on the meaning of “fintech” has resulted from people’s natural interest in many forms and examples. On the other hand, Fintech refers to the application of technology to improve financial services. Customers of financial services, for instance, can benefit from the automation of customer support procedures while coping with typical obstacles across providers. It is clear that the fintech business is poised to achieve impressive growth statistics, thanks to the value it offers and the fast expansion of many fintech firms and companies.
Examining fintech’s many forms and applications may show how this technology revolutionizes the financial sector. The following discussion describes various instances and types of fintech and explains their worth.
Why Should You Care About Fintech?
Interest in financial technology or fintech types has recently become a priority for aspiring professionals. Fintech refers to financial technology and encompasses almost any technology you can integrate with finance services. It can be defined as the collection of new technologies developed to expand the scope of financial services.
Most importantly, fintech includes software, cloud applications, mobile and web applications, dedicated organizations, and digital extensions of legacy banking services. The credit cards introduced in the 1950s offer a prominent example of how fintech has been introducing credible improvements in financial services.
The multiple applications of fintech have led to the rise of fintech categories, which can introduce plausible improvements for users. Interestingly, fintech users include customers, startups, small businesses, and well-established corporations wanting to leverage fintech. In addition, government institutions can also leverage fintech to achieve desired value advantages. Before you look at the different fintech types, you might have doubts about the impact of fintech.
The Fintech Effect on Numbers
Fintech has recently been a formidable trend in the technology domain. It is not an overnight phenomenon, as the first examples of financial technology are visible in using credit cards and ATMs. The introduction of mobile banking enabled the large-scale use of fintech—for example, almost 5% of the global app downloads in 2019 account for financial applications.
Restrictions due to the global pandemic played a vital role in driving the adoption of different types of financial technology across different industries. The pandemic spurred a rapid boost in online booking, micro-loans, and virtual transactions to ensure efficiency in financial management. Investments in various fintech services reached more than $35 billion in 2019. The funding for financial technology applications has reached almost $25 billion from different funding deals.
Furthermore, the causes of fintech growth focus on the rise in the volume of digital payments. The transaction value in digital payments is projected to reach $9.46 trillion in 2023. Therefore, fintech categories can capitalize on the new trends in consumer behavior.
Subsequently, many financial services organizations have implemented innovative technologies to improve user experiences. The fintech sector is all set to reach the $310 billion mark by the end of 2023, suggesting a promising future for the domain.
Types of Fintech
The term “fintech” encompasses a wide range of ideas, innovations, and offerings in the financial technology sector. Meanwhile, new kinds of fintech are being made possible by the ever-increasing development of new technology within the industry.
Looking at how various technologies are changing financial services, you may get a good feel for the various fintech varieties. For a thorough grasp of financial technologies, below is a synopsis of the most common fintech types, accompanied by examples.
Blockchain and Cryptocurrencies
When asked to name the most common forms of financial technology, the first thing that comes to mind is blockchain and cryptocurrency. Along with smart contracts and consensus algorithms, blockchain technology has the potential to facilitate peer-to-peer transactions, which might pave the way for new standards in the expansion of financial services. Financial services stand to benefit greatly from the introduction of blockchain technology, which records financial transactions in a decentralized and immutable ledger, together with cryptocurrencies or crypto tokens.
Above all else, blockchain’s potential uses in the financial technology industry may pave the way for new financial innovations. For instance, double spending and counterfeit data issues can be avoided via the decentralized preservation of transaction histories. The influence of blockchain technology on the expansion of access to financial services is plain to see, given that over 80 million people across the globe use cryptocurrency wallets. The we. trade platform, developed by IBM for enterprise-level trade financing, is one of the most prominent blockchain-based financial initiatives.
Another significant example of a fintech type strongly impacting financial services is cryptocurrency, built on blockchain technology. If implemented, blockchain technology can improve the privacy, security, and transparency of financial transaction tracking across their whole lifecycle. Cryptocurrencies could use blockchain’s characteristics to manage and govern their assets better. The meteoric rise of cryptocurrencies like Bitcoin, Ethereum, stablecoins, and many more has demonstrated their centrality to the financial technology industry’s potential.
Regulatory Technology
One subset of financial technology that the Financial Conduct Authority calls “regulatory technology” is that which aims to streamline the process of meeting regulatory requirements. By leveraging state-of-the-art technology, regulatory technology (RegTech) can enhance compliance and pave the way for straightforward, affordable, secure, and easy-to-understand implementation.
The ever-evolving financial sector’s attempts to keep up with technological developments necessitate new regulatory frameworks. Regulation Technology (RegTech) is an important subset of financial technology that seeks to standardize and promote openness in regulatory procedures.
Not only that, but fintech regulatory tech is all about automating the compliance system from top to bottom. Regulatory reporting, transaction monitoring, risk management, and compliance management are just a few examples of the potential regulatory solutions that RegTech could provide. Continuity, Regis-TR, and Provenir are a few instances of RegTech platforms.
Insurance Technology
Insurance technology, sometimes InsurTech, is the next most notable addition to the fintech category. Because of the proliferation of digital financial service ecosystems, insurers have more leeway to create valuable insurance solutions that enhance the customer experience. To increase the worth of insurance services, insurers are attempting to employ fintech variations incorporating various technologies such as smartphone apps, artificial intelligence, the Internet of Things (IoT), machine learning, and more.
Possible game-changing advancements in insurance services made possible by fintech include simplifying insurance data collection on mobile devices. Similarly, easy-to-use tools could be crucial in making coverage management easier. Telematics has been the focus of many providers to enhance and simplify coverage for essential insurance products. Concurrently, InsurTech alters consumers’ views of insurance products by highlighting their numerous useful features.
Mobile Payments
Surely, some of you have used well-known apps like Google Pay, Venmo, Apple Pay, PayPal, or Google Play to make or receive payments. A global pandemic has shifted the world’s focus to the potential of cashless transactions. Organizations across all sectors have been forced to consider alternative payment methods due to the steadily dwindling use of cash in the post-pandemic age.
Mobile payments offer varying degrees of value depending on their specific features. Many people have started using popular mobile payment systems like Venmo and Google Pay. Venmo’s over 65 million daily users show that people trust the service.
Peer-to-Peer Lending and Borrowing
Additionally, there are good reasons to believe that the advent of financial technology will revolutionize the lending and borrowing systems. Fintech has been integral to making getting a loan easier. One example of how financial technology changes the game is peer-to-peer lending protocols.
Borrowing money was as easy as using one of these sites at any moment. Curiously, consumers of these fintech solutions would also discover adaptable chances to assess a borrower’s credit readiness. Concurrently, going to a physical location like a bank or office to apply for a loan is no longer necessary, thanks to fintech.
To facilitate easy access to financial services and enhance the user experience, P2P lending protocols depend on DeFi. Two well-known lending protocols that use DeFi as their foundation are Compound and Ave. Credit Karma is another well-known example of a fintech lending application.
It is a well-known personal finance company with over 110 million users in the USA. The app is known for its free and reliable credit score reports. It also offers effective resources for tracking one’s identification and credit, comparing loans, and receiving practical suggestions for credit cards.
Personal Finance Management
It is a distinct subset of financial technology that aims to improve retail investing and wealth management in a more individualized way. One well-known and value-based subset of fintech, personal finance technology (often shortened to “WallTech”), may automate and streamline many business processes.
WealthTech’s main objective is to streamline the investment process, hoping this will make portfolio management easier for investors. Monie, a personal finance app for the Egyptian market, stands out among fintech versions as an example of a solution for managing one’s finances.
Crowdfunding
The crowdfunding market has the potential for steady growth in the forecast period from 2021 to 2026, with a CAGR of more than 16%. Crowdfunding platforms have removed the need to visit a bank or pitch ideas before venture capitalists obtain project loans or funding.
The outline of different fintech categories would also emphasize the new capital-raising methods by employing innovative improvements. Crowdfunding fintech services could offer the ideal opportunity for micro and small enterprises to discover investors for their projects.
Robot-based Advice and Stock Trading
In financial technology, robot-based advisors stand head and shoulders above the others. The financial industry is growing rapidly, and you must have heard that AI and ML are crucial to this sector. The term “robot-based advisor” refers to software that uses artificial intelligence and machine learning to provide advice on monetary matters. Consequently, people who utilize financial services can find a way to save money without consulting a professional. Most importantly, your robotic advisor would be able to analyze data continuously and would never take a vacation.
Similarly, stock trading applications are mentioned in the description of many forms of financial technology. Apps that allow stock traders to do their business from their cell phones are a boon to investors. Artificial intelligence and machine learning have the potential to unlock valuable insights hidden within massive data sets. Blockchain technology can potentially improve the safety of investors’ private information and financial records.
Conclusion
The overview proves that financial technology has advanced significantly since credit cards were introduced in the 1950s. Some examples of how financial services are transforming include chatbots that provide customer care, mobile apps that offer financial advice, and robots that do the advising.
On the other hand, remember that every fintech variation has a role in the bigger picture. Innovation abounds in the financial technology sector, driven by the goal of fintech to simplify financial services for both enterprises and consumers.
