What is FinTech and how does it work?

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The world of Fintech

The startup ecosystem is filled with Fintech possibilities; let us try to understand what it really is and what defines its scope.

I am going to introduce Mark here and focus on his usual Friday evening activities.

Mark finds his daily mail waiting for him as he enters his home after a long day of work. He has received a check in the mail. He immediately opens his bank’s mobile app, takes a picture, and uploads it to deposit it. While on his smartphone he also checks Mint for his monthly entertainment budget. Then he heads out to meet his friends for dinner. They all use Venmo to split the tab. Later, all of them go to a bar where he pays for a drink with Apple Pay. After an enjoyable night, he calls for an Uber for which he pays with the stored credit card.

If you notice, Fintech was the unsung hero of his night. In 2020 Fintech is a big part of people’s lives that are busy, trying to manage a schedule, and own a smartphone. I bet that includes you. Back in the day, Fintech simply meant financial institute’s back-end technology systems, with time its scope, tools, platforms, and services have all broadened. If you are still wondering what Fintech exactly is, then here it is:

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What is Fintech, exactly?

Fintech is a portmanteau derived from Financial Technology. It refers to any new technology that is used to improve and automate traditional financial services. Any company that offers financial services through software or other technology can be described as Fintech. It has changed the way consumers perceive, manage, and access their finances.

Fintech has been used for many technological developments that have disrupted the traditional banking and financial industries to the extent that it threatens brick-and-mortar banks and financial institutes. Examples of that include mobile payment apps like Square (SQ), PayPal (PYPL) or Venmo to cryptocurrency.

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Where do we find Fintech?

From the Banks’ perspective, Fintech is used for both back-end processes like monitoring account activity and consumer-facing solutions like using an app to check the balance.

Consumers use Fintech for taxation, budgeting, insurance, and credit checks, stocks with hardly any prior investing experience. Fintech has transformed mundane tasks like transferring money or paying bills to technically intricate concepts like peer-to-peer lending or crypto exchanges.

Businesses use Fintech applications for payment processing, obtaining loans, e-commerce transactions, accounting, and, more recently, seeking government assistance like Emergency Wage subsidies. Start-ups like Airwallex facilitate businesses’ international fund needs.

The pandemic has given a boost to fintech enabled features like contactless payments or other tech-fueled transactions. While most banks and credit unions had to close their doors physically, they have been able to offer support and services digitally. Digital platforms have eliminated the need to queue up at the banks or any other financial institutes as well as have shortened telephone services wait times.

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Fintech Applications

1. Robo-Advising & Stock Trading Apps — Robo-advising offers portfolio management and asset recommendations based on algorithms with increased efficiency and lower costs compared to wealth management experts. Certain financial institutes now offer online robo-advising services.

Stock-trading apps have allowed investors to buy and sell stocks at the tap of a finger on their smartphones. With apps like Acorns and Robinhood, investing has become inexpensive with any budget.

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2. Crowdfunding Platforms — These platforms let app and internet users send and receive money from others. They even let individuals and businesses pool funds from different sources in a single place. This eliminates the need for banks for loans; instead, companies go straight to investors for support. Such platforms include GoFundMe, Kickstarter, Patreon, etc.

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3. Blockchain & Cryptocurrency — BlockVerify — a service of Blockchain that limits fraud by keeping provenance data on the Blockchain. Exchanges like Binance and Huobi allows users to buy and sell cryptocurrencies like Bitcoin or Ethereum.

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4. Budgeting Apps — Fintech’s budgeting apps are the most popular and commonly used apps by consumers. They can now make monthly payments, track incomes, expenditures, and more on apps like Intuit and Mint. Gone are days when budgeting meant making excel spreadsheets, gathering checks, and doing calculations to keep track of one’s finances.

Do you have an idea that would revolutionize the way we deal with our finances? Get in touch.

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Written by

Software consulting company that focuses on emerging technology such as AI, Blockchain, Cloud Computing, and Data Engineering, MERN Stack, and Fintech

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