FinTech, a combination of the words “financial” and “technology,” is a relatively new, and often nebulous term that applies to any emerging technology that helps consumers or financial institutions deliver financial services in newer, faster ways than was traditionally available. Think of the difference between walking into a bank to request your balance and the ability to pull up that information in real-time on your phone and you’ll have a good idea of FinTech’s impact.
Everything from a consumer’s ability to go online and see their financial transactions to apps that allow you to pay friends to tools that allow financial institutions to make quick lending decisions are all part of the evolution of financial services. The ability for investors to do their own research, choose stocks and see their portfolio performance in real time is also an example of FinTech in action.
FinTech is empowering consumers to take charge of their financial lives, leading to much greater financial literacy than ever before. It’s tearing down the old silos and helping to advance the consumers’ financial situation and outcomes by leveraging advanced technology.
Examples of FinTech
Some well-known companies such as Personal Capital, Lending Club, Kabbage and Wealthfront are examples of FinTech companies that have emerged in the past decade, providing new twists on financial concepts and allowing consumers to have more influence on their financial outcomes.
Digital Lending and Credit
FinTech giant Kabbage directly funds small business loans and is powered by transactional data to help make incredibly quick lending decisions. Tapping into peer-to-peer lending, Lending Club lets users loan each other money (P2P lending) for business ventures without the involvement from a traditional financial institution. Each of these innovations is made possible through the use of Big Data and advanced analytics across digital platforms.
In the growing field of credit reporting, Credit Karma is an example of a FinTech that’s providing a service (free credit reports) in exchange for the ability to advertise loans and credit cards tailored to the specific needs of its customers.
With consumers looking more towards financial wellness, many financial institutions are adopting or expanding their mobile banking capabilities with the rising demand for digital banking among consumers. Most banks now offer some type of mobile banking capability on their platform.
Ask any person under 30 how they prefer to pay and they’ll likely tell you mobile apps are the way to go. As we’ve moved from a cash-based society to an increasingly digital one, peer-to-peer services such as Venmo have arisen to replace traditional payment methods. In fact, it’s estimated that in 2018 alone, mobile point of sale transactions will top $5.4 billion worldwide.
Cryptocurrency & Blockchain
Cryptocurrency exchanges have been able to connect users buying or selling cryptocurrencies such as bitcoin. Blockchain solutions have aimed to reduce fraud by keeping provenance data on the blockchain.
Insurtech is the use of technology designed to maximize savings and gain efficiency from the insurance industry models. Insurtechs are redefining the insurance customer experience by innovating lengthy processes including underwriting, claims processing and immediate activation. FinTech companies are starting to partner with traditional insurance companies to automate processes and enable the insurance companies to expand coverage.
Trading and investing has improved with the adoption of FinTech. Information from big data is often unstructured and unreadable without the help of AI technologies. Using natural language processing, these technologies can sift through complex datasets and extract insights from data in a matter of seconds. Now, traders can now run large amounts of data through algorithms and identify trends and risks.
Banking as a Service (BaaS)
Through Banking-as-a-Service, or white-label banking, FinTechs are able to offer a financial institution’s products and services under the FinTech’s own brand. The FinTech pays a fee to a financial institution to access their BaaS platform, banking license, regulatory expertise, and services associated with lending, payments, mobile bank accounts, debit cards, fraud management, and more.
Global FinTech Solutions
The Importance of the FinTech Industry
The growth of FinTech is due in large part to the opportunity it affords small players to compete on the same field as traditional banks and financial institutions. Thanks to FinTech, it’s no longer about who is biggest, but who is fastest and most responsive at effectively addressing the ever-changing consumer demands. Additionally, the solutions offered by FinTech companies are no longer “one size fits all.” Instead, they offer targeted – often niche – services that fill the gap of a particular financial need, sometimes at much lower costs than those offered by traditional financial providers.
As consumers become even savvier and more connected, the FinTech companies that succeed will be the ones that continue to successfully innovate in bringing new solutions to old problems.
Envestnet | Yodlee & FinTech
Envestnet | Yodlee has been at the forefront of the FinTech evolution as one of the first companies to provide data aggregation of financial accounts back in 1998. Since that time, Envestnet | Yodlee has continued to be a leading innovator in this category providing advanced Aggregation and Account Verification financial APIs. The company is also a leader in the development of personal financial wellness and data analytics offerings. Additionally, Envestnet | Yodlee has been running a FinTech incubator program, working with select start-ups from around the globe to help deliver the next generation of FinTech solutions using big data and predictive analytics.
Envestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-based innovation for digital financial services including, financial institutions, digital innovators, and third-party developers.