What is fintech? | MyWalletHero
Fintech is the abbreviation for financial technology (a combination of words known as coat rack if you’re interested). But what does “fintech” really mean? What technology does he use? And how does that affect you? Let’s find out.
Fintech: what is it?
FinTech is quite broad and, in truth, there is no official definition.
However, the Bank of England describes it as “a technology-driven financial innovation that could lead to new business models, applications, processes or products”. In other words, fintech is a technology that can help us do more with our money.
Fintech is behind some of the products and services that many of us take for granted, including:
- Contactless payments
- Digital bank
- Money management apps
- Investment advice using artificial intelligence (AI), such as robo-advisers
- Alternative financing such as peer-to-peer lending and crowdfunding
What technology does fintech use?
The technology behind fintech is vast. Let’s explore three examples.
1. Data analysis
We’re not talking about some V-shaped searches on an Excel spreadsheet. Fintech data analysis involves tons of information called big data.
This data covers your financial habits, including your spending habits, which can be analyzed to provide insight to banks and other organizations. They do this using AI and algorithms. Data analysis can also help lenders assess the credit of potential customers.
This type of technology can also include the analysis of “alternative data”. This is basically all other information that can be collected about you. This includes studying your web searches, social media, app usage, and even data from portable devices like an Apple Watch.
The information gleaned can then be used to build a more complete picture of who you are and what products might (or not) interest you.
2. Open bank
This is when you share your bank details with a third party, allowing you to view all of your different accounts in one place. Open banking can help you manage your money and be used to find better deals on a range of financial products.
3. Digital and cryptocurrency
Fintech has also contributed to the development of cryptocurrencies *, many of which use blockchain technology. This technology allows a number of cryptocurrencies (such as Bitcoin) to remain decentralized and publicly monitored.
The growing popularity of crypto has, in turn, inspired conversations around digital versions of “real” currencies like the euro.
What are the advantages and disadvantages of fintech?
As with most technological developments, there are pros and cons. The advantages include:
- Faster and simpler processes – make online banking more efficient and accessible
- Greater competition – data sharing means that service providers will have to improve their game and remain competitive to attract consumers
- Safer systems – distributed ledger technology (like blockchain) can store information in multiple places at the same time. As a result, it demonstrates how systems can be made more secure.
And the disadvantages include:
- Exclusion – less digitally savvy consumers may feel overwhelmed or anxious about switching to online banking.
- Inability to access products – the use of algorithms and AI could cause consumers to miss products and services. While face-to-face banking allows you to tailor decisions to your situation.
- Risk of scams – new or unfamiliar processes and technologies can help fraudsters trick unwitting consumers into parting with money.
How does fintech affect you?
Fintechs have been influencing the way we manage our money for much longer than you might think.
In fact, the very first example of technology used to innovate in finance was the humble ATM machine. In 1967, Barclays Bank installed the very first automated teller machine (ATM) in its Enfield branch.
Fintech also saw the unveiling of First Direct in 1989. Started by Midland Bank (now HSBC), it was the world’s first bank without physical branches. And in 1995, the Security First Network Bank in the United States became the world’s first online-only bank.
So while the word itself seems like a thoroughly modern invention for our digital world, fintech has been around for over 50 years.
*The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of the money invested. Readers are responsible for performing their own due diligence and obtaining professional advice before making any investment decisions.
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