What is Fintech?
A collaboration of the words ‘finance’ and ‘technology’, the term Fintech refers to the use of technology to automate/enhance its financial services and processes – by making them easier, faster, cheaper and more accessible. Despite the term ‘fintech’ not being typically new, technological advancements within businesses have become increasingly popular. Especially within the financial sector, where organisations now rely on technology to support financial transactions between businesses and consumers. Keep reading to find out how Fintech is shaping financial services related to your business.
What industries does it apply to?
The notion of Fintech has transformed the way the banking sector operates. It enables real-time actionable decisions while also empowering consumers to take charge of their financial decisions. According to IBISWorld, the major players within Australia’s banking industry such as Commonwealth Bank and Westpac have invested heavily in technology over the past 5 years. More specifically through the use of forming strategic ventures to expand digital presences and compete with offerings such as Afterpay.
2. Cryptocurrency & Blockchain
A concept parallel to Fintech is the birth of cryptocurrency and its technological structure known as blockchain. Considered one of the most fundamental elements of Fintech, blockchain is a ledger of all transactions that occurred across a certain network. In layman’s terms, the technology allows the consumer to hold their money without a bank. This essentially builds a digital wallet through the purchase of cryptocurrencies such as Bitcoin or Ethereum.
3. Investment & Savings
Fintech has undoubtedly contributed to an increase of investing and saving apps over the past 5 years. Essentially veering consumers away from the traditional in-person forms of investment and saving techniques. The barriers of traditional investing are being broken down due to the influx of Fintech start-ups. Which are introducing consumers to the everchanging market such as digital coins, trading of stocks and other commodities.
The process of moving money around has been undoubtedly simplified by Fintech technology, which is appealing to consumers. This simplicity limits the reliance on physical banks, where everything can be done digitally on a mobile or laptop. The concept of transferring money through an external or banking app such as Venmo or Paypal has become increasingly popular. This is due to the services being instant and have a surprising amount of security. In 2021, Fintech Australia reported that payments and wallets continue to be the most common type of fintech (43%), proving promising growth for this industry.
On the topic of lending, Fintech’s innovative nature has led to the overhauling of credit within banks. Over time, this has been modernising risk assessment techniques, increasing loan accessibility and speeding up approval processes for consumers. This digitisation has altered the way in which financial services operate, removing the reliance on traditional banks who have forever determined who is ‘worthy’ of being lent money. The Australian Business Journal have recognised businesses such as Joust, MyPayNow and WeFund are ones to watch in the investment space due to their digital presence and focus on the consumers themselves.
Traditional Financial Services VS Fintech
As previously discussed, it is clear to observe the prevalence and importance of Fintech branching across multiple industries and sectors. One of the greatest changes between traditional financial services and Fintech is undoubtedly banking and payments. Within this context, the increase of technology has altered the banking landscape prompting consumers and households to adopt more digital means of conducting day-to-day banking and payment actions.
What do we mean by traditional financial services?
In the past, the financial services industry has been slow to embrace innovative technologies. There have been concerns regarding security and regulatory compliance, leading many institutions to neglect outreaching and instead internalise the building of their business. This may have proven functional in the past; however, it has limited banks’ ability to be agile and adapt to the needs of consumers. Which is one of the largest point of differences when placed in comparison to banks’ current operations, almost solely driven by consumer demands.
How has Fintech shaped this financial service?
- Contactless payments (PayPass)
- Mobile wallets (on iPhone and Android) limits the need for a physical card
- Buy-now pay-later services (Afterpay, Zippay)
- Mobile banking apps replacing physical bank branches
- Automated services and processes occurring online instead of generic communication techniques such as in person consultations or via phone
It is clear that the prevalence of Fintech within the context of financial services has had a vast positive impact. Due to this technological innovation, businesses have been forced to adapt and find alternate ways to remain relevant and most importantly, deliver the wants and needs of digitally minded customers.
Interested in incorporating elements of Fintech into your business’s financial services?