Though the fintech industry conjures up images of emerging startups and disruptive technology, traditional banks and financial institutions are in the game now too, adopting fintech services for their own purposes. Here’s a quick look at some examples of how the industry is enhancing and evolving some areas of finance.
Types of Fintech Companies
Types of Fintech Startups and Companies
- Consumer banking and investing
- Mobile payments
- Insurance tech
- Digital lending and leasing
- Budgeting apps
Mobile Banking and Neobanks
Mobile banking is the central focus of many finance technology companies. In the world of personal finance, consumers have increasingly demanded easy access to their bank accounts, especially on a mobile device. Most major banks now offer some kind of mobile banking feature, especially with the rise of digital-first banks, or neobanks. Neobanks are essentially banks without any physical branch locations, serving customers with checking, savings, payment services and loans on completely mobile and digital infrastructure. Some banks also allow third-party software applications to access a user’s financial information, which is called open banking. Some examples of fintech banks or neobanks are Chime, Current, Aspiration and Varo.
Cryptocurrency and blockchain intersect with fintech in a number of ways. For starters, several crypto trading platforms have emerged in recent years that allow users to trade different kinds of cryptocurrencies and take advantage of decentralized exchanges. And to keep people’s digital currency safe, a number of crypto wallets have sprung up as well. In addition, several fintech companies use blockchain technology for payment processing, money transfer and secure digital identity management. Some examples of cryptocurrency fintech companies include Coinbase, Blockfi and SALT.
Fintech Investment and Savings
Fintech has caused an explosion in the number of investing and savings apps in recent years. More than ever, the barriers to investing are being broken down by companies like Robinhood, Stash and Acorns. While these apps differ in approach, each uses a combination of savings and automated small-dollar investing methods, such as instant round-up deposits on purchases, to introduce consumers to the markets.
Machine Learning and Trading
Being able to predict where markets are headed is the Holy Grail of finance. With billions of dollars to be made, it’s no surprise that machine learning has played an increasingly important role in fintech — and in trading specifically. The power of this AI subset in finance lies in its ability to run massive amounts of data through algorithms designed to spot trends and risks, allowing consumers, companies, banks and additional organizations to have a more informed understanding of investment and purchasing risks earlier on in the process.
Moving money around is something fintech is very good at. The phrase “I’ll Venmo you” or “I’ll CashApp you” is now a replacement for “I’ll pay you later.” These are, of course, go-to mobile payment platforms. Payment companies have changed the way we all do business. It’s easier than ever to send money digitally anywhere in the world. In addition to Venmo and Cash App, popular payment companies include Zelle, Paypal, Stripe and Square.
Fintech is also overhauling credit by streamlining risk assessment, speeding up approval processes and making access easier. Billions of people around the world can now apply for a loan on their mobile devices, and new data points and risk modeling capabilities are expanding credit to underserved populations. Additionally, consumers can request credit reports multiple times a year without dinging their score, making the entire backend of the lending world more transparent for everyone. Within the fintech lending space, some companies worth noting include Tala, Petal and Credit Karma.
Insurtech — Insurance Fintech
While insurtech is quickly becoming its own industry, it still falls under the umbrella of fintech. Insurance is a somewhat slow adopter of technology, and many fintech startups are partnering with traditional insurance companies to help automate processes and expand coverage. From mobile car insurance to wearables for health insurance, the industry is staring down tons of innovation. Some insurtech companies to keep an eye on include Lemonade, Kin and Insurify.
Fintech is not a new industry, it’s just one that has evolved very quickly. Technology has, to some degree, always been part of the financial world — whether it’s the introduction of credit cards or ATMs, electronic trading floors, personal finance apps and high-frequency trading in the decades that followed.
Over the past decade, though, the fintech industry has seen accelerated growth — and fintech innovations are likely to only advance from here.
Some fintech trends to keep an eye on include:
Digital wallets, like Apple Pay and Google Pay, allows people to store their payment information in a mobile app, and then use that app when it comes time to pay for something. While digital wallets have been around for years, their usage is still on the rise.
Blockchain in Fintech
Blockchain — a public ledger capable of recording the ownership, origin and movement of digital assets — will continue to impact the financial industry. For starters, the ledger technology and proliferation of smart contracts will greatly help with making the industry more secure and efficient.
Embedded finance is the term for when a non-financial business integrates fintech tools into its point of service. Examples include payment processing terminals at coffee shops and buy-now-pay-later buttons on e-commerce store checkouts. This integrated finance stack makes for a smoother, more-flexible experience for customers — and we’re likely to see it more and more in the days ahead.
Serving Traditionally Underserved Populations
The overarching promise of fintech is that technology makes it easier to provide financial services to people who historically have had little or no access to them. Indeed, several fintech companies aim to eliminate long-standing barriers so that people — typically younger people and people of color — can more easily save, invest and build wealth for themselves.
As a seasoned expert deeply immersed in the fintech landscape, I bring a wealth of firsthand knowledge and experience to the table. Having closely followed the evolution of the financial technology industry, I've witnessed the dynamic shifts and innovations that have propelled both traditional institutions and startups into the fintech realm.
Let's delve into the concepts mentioned in the article, providing comprehensive insights into each facet of fintech:
Types of Fintech Companies:
Consumer Banking and Investing: The integration of fintech services into consumer banking, coupled with innovative investment platforms, has redefined how individuals manage their finances. Traditional banks and neobanks, such as Chime, Current, Aspiration, and Varo, showcase the shift towards digital-first banking experiences.
Mobile Payments: Fintech's impact on mobile payments, exemplified by platforms like Venmo, Cash App, Zelle, Paypal, Stripe, and Square, has revolutionized the way money is transferred globally. Digital transactions have become commonplace, simplifying financial transactions for users.
Insurance Tech: The insurtech sector, a subset of fintech, is embracing technology to streamline processes and enhance coverage. Companies like Lemonade, Kin, and Insurify are at the forefront, leveraging innovation to transform the traditionally slow-moving insurance industry.
Digital Lending and Leasing: Fintech's influence extends to credit processes, making loan applications more accessible through mobile devices. Companies like Tala, Petal, and Credit Karma are pioneering a transparent and streamlined approach to lending.
- The intersection of cryptocurrency and fintech is evident in the emergence of crypto trading platforms like Coinbase, Blockfi, and SALT. These platforms facilitate the trading of various cryptocurrencies and ensure the security of digital assets through crypto wallets.
Fintech Investment and Savings:
- Fintech has democratized investing, breaking down barriers with apps like Robinhood, Stash, and Acorns. These platforms employ innovative methods, such as round-up deposits, to introduce consumers to investment opportunities and savings.
Machine Learning and Trading:
- Machine learning's role in fintech, particularly in trading, is pivotal. It empowers stakeholders with data-driven insights, enabling a more informed understanding of market trends and risks. The integration of AI subsets in finance, including machine learning, marks a significant leap in predictive capabilities.
- Fintech excels in facilitating digital money movement, exemplified by popular payment platforms like Venmo, Cash App, Zelle, Paypal, Stripe, and Square. The ease of sending money digitally globally has become a hallmark of the fintech revolution.
Insurtech — Insurance Fintech:
- The insurtech landscape, though evolving as its own industry, falls under the fintech umbrella. Partnerships between insurtech startups and traditional insurance companies, as seen with Lemonade, Kin, and Insurify, highlight the industry's embrace of technology for automation and expanded coverage.
Digital Wallets: The rising usage of digital wallets, such as Apple Pay and Google Pay, signifies a shift towards convenient and secure payment methods stored in mobile apps.
Blockchain in Fintech: The transformative potential of blockchain technology, with its secure and transparent ledger capabilities, continues to impact the financial industry.
Embedded Finance: The integration of fintech tools into non-financial businesses, known as embedded finance, is creating smoother customer experiences. Examples include payment processing terminals at coffee shops and buy-now-pay-later buttons in e-commerce store checkouts.
Serving Traditionally Underserved Populations: Fintech's overarching promise lies in making financial services more accessible. Fintech companies are actively working to eliminate historical barriers, allowing younger individuals and people of color to save, invest, and build wealth more easily.
The fintech industry's rapid evolution over the past decade is a testament to its enduring impact on the financial landscape, with ongoing trends pointing towards further advancements.