The term FinTech is an abbreviation derived from ‘financial services’ and ‘technology.’ FinTech can be described as any technology that delivers financial services through software.
FinTech companies offer services pertaining to insurance, loans, credit cards, and banking on the internet. So, if you have a reliable internet connection such as that offered in Optimum packages, you can access financial services with a few clicks on your device.
While this new technology boasts many benefits for businesses and customers in terms of cost, convenience, and ease of use, there is a debate regarding how secure it is (more on that later). Nonetheless, businesses are increasingly making use of fintech to manage their financial processes and operations better.
Who is Active in Fintech?
Although Fintech is a new technology, it is used by both start-ups as well as traditional finance companies. The former offers targeted solutions and services for customer’s financial needs. Many of these companies are based in tech hubs such as New York, London, Singapore, and San Francisco. Examples of some fintech companies are Transferwise which is an international money transfer provider, and Lenddo which is a credit scoring service.
Insurance companies, traditional banks, and other large financial institutions have also begun investing in fintech. While some choose to integrate the technology into their existing product and service offerings, others prefer investing in fintech start-ups or decide to set up their own fintech departments.
Advantages of Fintech
Fintech has enormous benefits both for businesses as well as consumers. Let’s have a look at some of them
1#. Speeds Up Processes
With fintech, financial processes can be completed quickly. For example, getting approvals for loans or insurance can take a lot of time if you choose to do it the traditional way. But with fintech, the procedure is five times quicker. You don’t need to wait long hours in the office and talk to multiple people. The process might be complete within 24 hours.
Customer needs and demands are evolving over time and banks are facing a difficult time responding to them. This is because the systems are not flexible and the decision processes are not fast. Fintech companies on the other hand are very flexible and that’s because they have smaller leaner structures and advanced updated systems. Besides, they use the Application Program Interface (API) which enables them to work with technology providers efficiently and quickly.
Hence, these companies are well-equipped to offer different financial services like investing, banking, multi-currency management, and cross-border payments among many others. The best part of fintech companies is that they have the ability to tailor a service according to the needs of the consumers thereby providing them personalized products and services.
Fintech is a new technology and whenever there is something new that challenges set norms and practices, it faces resistance. Fintech is a secure technology which is why businesses are making use of it for major tasks and processes. However, before approaching or engaging a fintech company, you must check their security certificates. A good fintech company would always have the latest security certificates. Such companies collect biometric data and have multiple types of encryption.
4#. Works with banks
A common misconception about fintech is that it is a rival of traditional financial services. The truth is that if a fintech company must flourish in the finance industry, it should work as a facilitator to banks instead of their competitor. Fintech companies and banks both aim to provide an upgraded level of customer experience and working as tech partners would help them do so much faster.
5#. No Boundaries
Another benefit fintech offers is that it allows customers to access financial services no matter where they are in the world. For example, making cross-border payments from Asia to Europe is no big deal in fintech. You can do such activities within a matter of minutes provided you have an internet-connected to your device.
Risks in Fintech
While utilizing the services of a fintech company (or any company for that matter), you need to be wary of the following risks.
Owing to the growing trend and scope of fintech, many companies are entering into the industry of financial services. Some do not have the experience and skills to operate in the field. This is why it is extremely important to check the company’s license before applying for their products and services. You can also get a good idea about the company’s credibility and service by reading financial documents such as reviews and product disclosure statements.
2#. Less Regulation
Some fintech companies operate in a less regulated environment. For example, it may not be necessary for a small business finance provider to have a credit license to offer loans. So before availing of the services of a fintech company, one should be aware of how it has acquired its license and how it is regulated.