Fintech is a term all of us hear a lot nowadays. What is Fintech, you may ask.
Fintech stands for Financial Technology. Fintech thus refers to technologies used in the financial services sector by financial institutions for their back-end operations. In a more specific sense Fintech refers to technological innovations that are coming in to disrupt traditional financial services and this includes the whole gamut of services from banking which includes mobile payments, money transfers, loans and also other products like mutual fund and insurance.
So in essence Fintech is changing the way an individual spends, saves, invests and borrows money online, mostly through a mobile phone so that traditional visits to the bank and meeting with real life people is reduced or eliminated altogether.
When we ask ourselves what is the meaning of Fintech, it is easy to understand it in terms of some of the latest innovation in financial services which have become a part of our lives. Let us take a look at some of them.
Mobile payments: One of the most popular use of Fintech is mobile payments where people without bank accounts can instantly send and receive money from their mobile phones. This is very convenient as people can send and receive money and pay bills without using any cash.
Robo advisory: This is a system where a computer uses a set of algorithms and based on available data suggests financial products to a customer without any human intervention. Going ahead this can replace a human financial advisor, though right now a blend of both is offered by most financial services firms. This is how Fintech is playing a role in the financial advisory space.
Chatbots: Chatbots are computer programs that work with artificial intelligence to conduct a conversation through text or voice. Chatbots give a feel as if one is talking to a human being and has thus replaced a real human being sitting on a computer and answering user queries. A chatbot can help a customer with answering general queries, give product suggestions and even generate leads 24X7. This is an example where the use of Fintech is enhancing customer experience.
Loan Apps: These loan apps use Fintech to collate data on customers and match a customer with loan products available for him or her. Technology helps to make the process faster, conduct verification checks, process an application and disburse a loan quickly. New financial technology is the reason why it is now possible to apply for a loan with a few simple clicks of the mobile phone.
Peer to peer lending: Here, technology matches lenders who want to earn a higher return on their investment to borrowers who are in need of an unsecured loan without the participation of any financial institution like bank or lending agencies.
Blockchain: Blockchain, which is essentially a distributed ledger, is a core Fintech technology. Since it has some specific characteristics, the use of blockchain is not only limited to cryptocurrency, but has found uses in other areas of finance.
Insurance and mutual funds: Fintech companies are leveraging technology to sell insurance and mutual fund products to the end consumer. Armed with multiple data points, technology is used to match customers to a suitable product thus cutting off the time it takes to buy these products to only a few minutes.
What is a Fintech company: A Fintech company is a company that develops new technology in the space of finance with the aim to disrupt existing financial products and services. So a payment start-up is a Fintech company since it brings about easy and digital modes of payments to its customers. Similarly an insurance aggregator is a Fintech company since it helps a person choose suitable insurance with the help of technology and buy it too with a few clicks. Fintech companies in the space of lending connects borrowers with lenders in a fast and efficient manner. Basically Fintech companies offer something that is better, faster or smarter to use than a traditional product or service. To stay ahead of the curve existing financial institutions like banks and insurance companies are also heavily investing in Fintech. Some of them are also nurturing or buying out Fintech startups. Total funding raised across Fintech and financial services was almost about $2billion USD in the first 11 months of 2018 and a total of 132 deals were signed. This goes to show how Fintech companies are rapidly transforming the financial landscape in India.
Fintech companies are thus using technology to remove manual intervention, middleman commissions and thus bringing down transaction costs and reaching out to a section of the population which was earlier outside the ambit of financial services.