Uses of FinTech
FinTech | 29 Sep 2020
From managing funds, trading stocks, paying for grocery or food, or managing insurance via our smartphones, these are uses of FinTech that have become ubiquitous in our daily lives. After laying the basic understanding of FinTech in the last article (LINK), we look at some of the FinTech uses in this article.
AppsFlyer’s the State of Finance App Marketing: 2020 Global & US Trends report showed an increase of 90% in installation of finance apps market share worldwide. Almost one-third of finance installs in the United States are digital banking apps that provide an alternative to traditional banks. I for one, can no longer imagine having to queue up at the bank unless absolutely necessary.
FinTech is an umbrella term covering a vast range of services that are changing in the new digital era. We look at some of the more well-known uses:
Blockchain and Cryptocurrency
Cryptocurrency and blockchain are characteristic examples of FinTech. Crypto-exchanges like Coinbase and Gemini connect users to buying or selling cryptocurrencies like bitcoin or litecoin. While cryptocurrency and blockchain may be somewhat controversial, they have certainly taken parts of the investment world by storm in recent years.
Bitcoin is an example of a cryptocurrency, a form of digital or virtual money. As it is entirely electronic, no physical notes or coins are involved. Blockchain can be described as a distributed ledger technology that maintain records on a network of computers. It has no central ledger data, thus ensuring security, transparency, and decentralisation. Smart contracts often use blockchain to automatically execute contracts between buyers and sellers.
A further application of blockchain is Open banking, which suggests that third-parties should have access to bank data to build applications that create a connected network of financial institutions and third-party providers.
Budgeting apps for consumers have grown exponentially in popularity over the years. Before, consumers had to create their own budgets or keep track of their finances on excel spreadsheets. After the FinTech revolution, consumers can now easily and efficiently keep track of their income and expenses on their mobile devices, revolutionising the way consumers think about their money.
Crowdfunding platforms allow internet and app users to send or receive money on the platform, allowing individuals or businesses to pool fund from a variety of sources. Companies like Kickstarter, GoFundMe or Patreon have allowed start-ups to skip the traditional bank loan, and go straight to investors. With applications ranging from family and friends funding, to fan and patron funding, the number of crowdfunding platforms has multiplied over the years.
Digital banks have completely changed our expectations of traditional banks. Budgeting and tracking our finances on a spreadsheet or pen and paper is a thing of the past. With digital banks, everything you need is kept in an app on your smartphone. Big players of the industry like Revolut boast a global customer base of over 10 million, with many now offering business accounts too.
InsurTech (Insurance Technology)
The disruption of the insurance industry includes online policy handling, data protection and tailored insurances. As a result, insurance premiums are calculated automatically. Products like telematics are offered to young or inexperienced drivers to help bring down their car insurance premium. This trend looks here to stay with InsurTech start-ups attracting an increasing amount of funding. For examples, insurance start-up Oscar Health, secured $165 million in funding in 2018 at a $3.2 billion valuation and personal finance company Credit Karma was valued at $4 billion in 2019.
Ever used ApplePay or Samsung Pay for product payments? Or used PayNow to send money to a friend? These are mobile payments applications. According to Global Mobile Payments Market 2020, the mobile payments market was valued at USD1139.43 billion in 2019.
RegTech (Regulatory Technology)
RegTech is the use of technology to enhance risk management and regulatory compliance in financial institutions. It seeks to help financial service firms meet industry compliance rules, especially those covering anti-money laundering to fight fraud. For example, automation of processes and digitisation of data makes FinTech systems vulnerable to hacker attacks. With the proliferation of cybercrime and the decentralised storage of data, cybersecurity and FinTech are intertwined. Unsurprisingly, regulation has emerged as the top concern among governments as FinTech companies take off.
Robo-Advising and Stock-Trading Apps
Robo-advising has disrupted the asset management sector by providing algorithm-driven recommendations and a customised portfolio management without human supervision. With advanced technologies that can analyse various portfolio options 24/7, even financial institutions have adapted to offer online robo-advising services.
Perhaps one of the more popular and big innovations in the FinTech space has been the development of stock-trading apps. Traditionally, investors had to go directly to a stock exchange. Now, investors can buy and sell stocks at the tap of a finger on their mobile device.
FinTech is here to stay
Before the advent of FinTech, a business owner would have gone to a bank to secure financing or start-up capital. If the business planned to accept credit card payments, they would need to partner with a credit provider and install the relevant hardware. With mobile and advancing technology, these hurdles are largely a thing of the past.
As with most technology, the younger the user is, the more likely it is that we are aware of FinTech. Consumer-oriented FinTech is targeted mostly toward millennials given their huge size and rising earning potential. While FinTech focuses on millennials, older consumers will do well to get used to mobile and online applications. For businesses, I suggest that the finance industry has already been disrupted and FinTech is required, no longer to get ahead of the competition, but to even just survive.