What is Fintech?
Although you may not know it by that name you’ve probably used “Fintech” and not even realized it. If you’ve used your smartphones for mobile banking, investing, or borrowing then you’ve used fintech or financial technology. Fintech is considered one of the leading disruptive technologies of the decade, providing financial management, investing, finance, and banking services via a financial service provider over the internet rather than in person.
Fintech companies use a variety of technologies to achieve the goal of remote access and automation of the financial industry. Some of these technologies include artificial intelligence (AI), data analytics, robotic process automation (RPA), and blockchain. One of the earliest examples of a pure Fintech company was Elon Musk’s X.com. This may not mean much to you now but you will certainly recognize its descendant PayPal which brought automated internet banking and payment transfers to the masses. This was accomplished by merging X.com with another early internet bank called Cofinity. And the rest as they say is history.
Fintech Solutions
Some popular fintech solutions include crypto advancements such as
Ripple which provides a blockchain-enabled method to rapidly transfer funds from one bank to another. Other Fintech advancements are making the banking industry more efficient than ever before. Banks are enhancing the customer experience via mobile apps to provide a real-time look at bank balances, and providing electronic bill payments. They are also using machine learning to secure against fraud and tools like chatbots to provide faster answers to customer questions. For example, Ally Bank has named their virtual assistant app “Ally Assist”.
Since it is both text and voice-enabled, users can take care of their banking needs by texting or speaking with Ally Assist. It can handle not only information requests but also deposits, digital payments, and transfers. And since it is based on AI, Ally Assist can learn from users, anticipating needs and recommending solutions.
Capital One calls their assistant “ENO” and they have added the cutesie innovation of having it communicate more like a human with emojis and all. Bank of America’s “ERICA” does the typical banking things with the addition of allowing you to check your FICO scores and receive digital updates on recurring monthly payments.
Insurtech
In addition to the banking industry fintech is making inroads into the insurance industry and as you might expect this variation has been aptly named “Insurtech“. Insurtech is using things like artificial intelligence (AI) to replace brokers and calculate the right mix of coverage for individuals and companies. Insurance companies are also using apps to consolidate policy management making it easier for the insured to manage and monitor their policies, coverage, and payments.
Fraud Prevention
One of the biggest hindrances to the growth of Fintech is the threat of fraud. Blockchain has improved digital security by leaps and bounds but sometimes a more physical solution is necessary. That is one reason the EMV chip was added to credit cards, as a way to cut down on card cloning, but there is still a long way to go. Although it may take a few seconds longer, using the EMV chip on your credit card is more secure than swiping the stripe because an EMV transaction produces a unique code for each transaction while the magnetic strip does not. So it is harder for fraudsters to steal EMV transaction data.
Fintech Technology Companies
Walmart Fintech
On January 11, 2021, Walmart announced it was entering the Fintech arena. “The new company is a strategic partnership with leading fintech investment firm Ribbit Capital. The venture will bring together Walmart’s retail knowledge and scale with Ribbit’s fintech expertise to deliver tech-driven financial experiences tailored to Walmart’s customers and associates.”
Fintech Innovation Lab
With Fintech booming everywhere it isn’t surprising that a startup laboratory would evolve to help jumpstart all these new fintech innovations. “The FinTech Innovation Lab is a premier global accelerator program that helps cutting-edge fintech startups scale their businesses in the world’s most competitive markets.”
The Currency Cloud
The Currency Cloud Ltd is an electronic money institution focused on cross-border cloud payments. The Currency Cloud Ltd offers payment infrastructure, foreign exchange, international payments, mass payments to business entities.
Augmentum
Augmentum is a U.K. based venture capital firm focused on financing the fintech revolution. They say “If you are truly trying to disrupt the financial services space then we’d love to meet with you… Unique or disruptive business models, first-mover advantages and best of breed businesses get us excited. We invest in teams that have the talent, passion, and grit to transform sectors and entrepreneurs that have the potential to become industry leaders. See our current Portfolio here.”
VISA – Plaid
In January of 2020 Fintech company Plaid announced that it was being acquired by VISA. Plaid’s network enables millions of consumers to interact with over 2,500 digital finance products. “With Plaid, you can securely connect your financial accounts to an app in seconds”. So Plaid is kind of like a master app that will allow all your financial accounts to talk to each other simplifying the management of all your separate accounts.
But the marriage between Plaid and VISA was not meant to be. A year later, in January 2021 the U.S. Justice Department announced “Visa Inc. and Plaid Inc. have abandoned their planned $5.3 billion merger”. The Justice Department charged that Visa has a monopoly in online debit and “Plaid, a successful fintech firm, is developing a payments platform that would challenge Visa’s monopoly.” So the Justice Department opposed the merger.
This vote of confidence by the Justice Department for Plaid’s viability may have helped them when in April Plaid sought another round of funding. According to CNBC “Fintech company, Plaid raised a new round of capital that nearly triples its valuation a few months after a deal to be bought by Visa fell apart… The new financing boosts Plaid’s valuation to $13.4 billion.”
Lanistar
On the less successful end of the Fintech spectrum is Lanistar. Just months after raising its initial £2m seed round, the fintech raised a £15m funding round, only for the money to be withdrawn by sole investor Milaya Capital. Lanistar has also faced accusations of bullying, sexism, and a “toxic work culture”.
Razer Fintech
Razer is a combination of a gaming company and a fintech company. Razer Merchant Services (“RMS”), the Group’s B2B payment processing business powers over 60,000 merchants across Southeast Asia. Razer Fintech recorded 79.5% year-on-year growth to US$3.2 billion in 2021, driven mainly by e-commerce marketplace purchases, food deliveries, and e-wallet top-ups. The company says, “Razer’s gamer-centric ecosystem has expanded rapidly over the last few years, and the Group expects the growth to continue as exciting new market opportunities emerge. Gaming, esports, and fintech are all on a significant growth trajectory as they become more entrenched in people’s lives.”
Kabbage
Kabbage is an automated lending platform for small businesses. The company currently has more than 100,000 clients and has lent more than $3.5 billion to small and medium-sized businesses since it launched.
CoinBase
Coinbase is a cryptocurrency exchange that allows users to buy and sell digital currencies like bitcoin and ether. It launched in 2012, to help users authenticate their cryptocurrency transactions.
Credit Karma
Credit Karma specializes in issuing free credit scores and reports making it easy for consumers to track and improve their credit rating.
SoFi
Social Finance (aka SoFi) is a non-traditional online lender focusing on refinancing mortgages and student loans for low-risk borrowers.
Stripe
Stripe is quickly becoming the standard for online payments replacing PayPal because it lets any business accept a variety of payment options including credit cards, Apple Pay, and other similar services.
Conclusion:
Fintech is rapidly transforming the online financial sector with dozens of new companies springing up to implement radical changes to the way we bank, invest and buy. This trend is just getting started and will continue to impact our daily lives.
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