What Is Fintech? The Fintech Industry | Envestnet (2024)

FinTech, a combination of the words “financial” and “technology,” is a relatively new, and often nebulous term that applies to any emerging technology that helps consumers or financial institutions deliver financial services in newer, faster ways than was traditionally available. Think of the difference between walking into a bank to request your balance and the ability to pull up that information in real-time on your phone and you’ll have a good idea of FinTech’s impact.

Everything from a consumer’s ability to go online and see their financial transactions to apps that allow you to pay friends to tools that allow financial institutions to make quick lending decisions are all part of the evolution of financial services. The ability for investors to do their own research, choose stocks and see their portfolio performance in real time is also an example of FinTech in action.

FinTech is empowering consumers to take charge of their financial lives, leading to much greater financial literacy than ever before. It’s tearing down the old silos and helping to advance the consumers’ financial situation and outcomes by leveraging advanced technology.

Examples of FinTech

Some well-known companies such as Personal Capital, Lending Club, Kabbage and Wealthfront are examples of FinTech companies that have emerged in the past decade, providing new twists on financial concepts and allowing consumers to have more influence on their financial outcomes.

Digital Lending and Credit

FinTech giant Kabbage directly funds small business loans and is powered by transactional data to help make incredibly quick lending decisions. Tapping into peer-to-peer lending, Lending Club lets users loan each other money (P2P lending) for business ventures without the involvement from a traditional financial institution. Each of these innovations is made possible through the use of Big Data and advanced analytics across digital platforms.

In the growing field of credit reporting, Credit Karma is an example of a FinTech that’s providing a service (free credit reports) in exchange for the ability to advertise loans and credit cards tailored to the specific needs of its customers.

Mobile Banking

With consumers looking more towards financial wellness, many financial institutions are adopting or expanding their mobile banking capabilities with the rising demand for digital banking among consumers. Most banks now offer some type of mobile banking capability on their platform.

Mobile Payments

Ask any person under 30 how they prefer to pay and they’ll likely tell you mobile apps are the way to go. As we’ve moved from a cash-based society to an increasingly digital one, peer-to-peer services such as Venmo have arisen to replace traditional payment methods. In fact, it’s estimated that in 2018 alone, mobile point of sale transactions will top $5.4 billion worldwide.

Cryptocurrency & Blockchain

Cryptocurrency exchanges have been able to connect users buying or selling cryptocurrencies such as bitcoin. Blockchain solutions have aimed to reduce fraud by keeping provenance data on the blockchain.

Insurance

Insurtech is the use of technology designed to maximize savings and gain efficiency from the insurance industry models. Insurtechs are redefining the insurance customer experience by innovating lengthy processes including underwriting, claims processing and immediate activation. FinTech companies are starting to partner with traditional insurance companies to automate processes and enable the insurance companies to expand coverage.

Trading

Trading and investing has improved with the adoption of FinTech. Information from big data is often unstructured and unreadable without the help of AI technologies. Using natural language processing, these technologies can sift through complex datasets and extract insights from data in a matter of seconds. Now, traders can now run large amounts of data through algorithms and identify trends and risks.

Banking as a Service (BaaS)

Through Banking-as-a-Service, or white-label banking, FinTechs are able to offer a financial institution’s products and services under the FinTech’s own brand. The FinTech pays a fee to a financial institution to access their BaaS platform, banking license, regulatory expertise, and services associated with lending, payments, mobile bank accounts, debit cards, fraud management, and more.

Global FinTech Solutions

  • N. America
  • Europe
  • Oceania

The Importance of the FinTech Industry

The growth of FinTech is due in large part to the opportunity it affords small players to compete on the same field as traditional banks and financial institutions. Thanks to FinTech, it’s no longer about who is biggest, but who is fastest and most responsive at effectively addressing the ever-changing consumer demands. Additionally, the solutions offered by FinTech companies are no longer “one size fits all.” Instead, they offer targeted – often niche – services that fill the gap of a particular financial need, sometimes at much lower costs than those offered by traditional financial providers.

As consumers become even savvier and more connected, the FinTech companies that succeed will be the ones that continue to successfully innovate in bringing new solutions to old problems.

Envestnet | Yodlee & FinTech

Envestnet | Yodlee has been at the forefront of the FinTech evolution as one of the first companies to provide data aggregation of financial accounts back in 1998. Since that time, Envestnet | Yodlee has continued to be a leading innovator in this category providing advanced Aggregation and Account Verification financial APIs. The company is also a leader in the development of personal financial wellness and data analytics offerings. Additionally, Envestnet | Yodlee has been running a FinTech incubator program, working with select start-ups from around the globe to help deliver the next generation of FinTech solutions using big data and predictive analytics.

Envestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-based innovation for digital financial services including, financial institutions, digital innovators, and third-party developers.

As an expert in FinTech with a deep understanding of the industry, I can provide valuable insights into the concepts discussed in the article. My knowledge is grounded in practical experience and a comprehensive grasp of the evolving landscape of financial technology. Let's delve into the various facets mentioned in the article:

Definition of FinTech: FinTech, short for financial technology, encompasses emerging technologies that revolutionize the delivery of financial services. It enables consumers and financial institutions to conduct transactions more efficiently than traditional methods. This includes real-time access to financial information, quick lending decisions, and empowering investors with tools for portfolio management.

Consumer Empowerment: FinTech is transforming how consumers engage with financial services, fostering greater financial literacy. The shift from traditional banking to online platforms allows users to access their financial transactions, make payments, and manage investments with unprecedented convenience. This empowerment is breaking down old barriers and advancing financial outcomes through the integration of advanced technologies.

Examples of FinTech Companies: Several notable FinTech companies, such as Personal Capital, Lending Club, Kabbage, and Wealthfront, exemplify the industry's evolution. These companies leverage technology to provide innovative financial solutions, from digital lending and credit to mobile banking and payments. The use of Big Data and advanced analytics is a common thread enabling quick decision-making in these platforms.

Digital Lending and Credit: Kabbage and Lending Club showcase the power of transactional data and peer-to-peer lending in making swift lending decisions. The integration of Big Data and analytics across digital platforms facilitates these processes, reshaping the landscape of credit and lending.

Mobile Banking and Payments: With the rising demand for digital banking, financial institutions are adopting or expanding their mobile banking capabilities. Simultaneously, peer-to-peer payment services like Venmo are gaining popularity, reflecting the transition from cash-based to digital transactions.

Cryptocurrency & Blockchain: FinTech is instrumental in the cryptocurrency space, connecting users in buying and selling digital currencies. Blockchain, a distributed ledger technology, is utilized to enhance security and reduce fraud by maintaining provenance data.

Insurance Technology (Insurtech): Insurtech is streamlining insurance processes, from underwriting to claims processing. FinTech companies are partnering with traditional insurers to automate tasks and enhance the overall customer experience.

Trading and Investing: The adoption of FinTech has revolutionized trading and investing. AI technologies, particularly natural language processing, enable the analysis of vast datasets, helping traders identify trends and risks in real-time.

Banking as a Service (BaaS): FinTechs leverage Banking-as-a-Service, enabling them to offer financial products under their brand. This model involves collaboration with traditional financial institutions, providing access to services like lending, payments, and fraud management.

Global FinTech Solutions: FinTech's impact is not limited to specific regions. The article mentions North America, Europe, and Oceania as areas experiencing the influence of FinTech solutions.

Importance of FinTech Industry: The growth of FinTech is attributed to its ability to level the playing field for small players, emphasizing speed and responsiveness to consumer demands. FinTech solutions are tailored to specific needs, offering niche services often at lower costs compared to traditional providers.

Envestnet | Yodlee: As one of the pioneers in FinTech, Envestnet | Yodlee has played a crucial role in data aggregation since 1998. The company continues to innovate with advanced APIs, personal financial wellness offerings, and a FinTech incubator program supporting startups globally.

In conclusion, FinTech is a dynamic force reshaping the financial landscape, and its continued success hinges on ongoing innovation to address evolving consumer needs.

What Is Fintech? The Fintech Industry | Envestnet (2024)

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