I often talk about the Fintech sector in my blogs, as it’s long been an area of interest for investment. However, for many Fintech is no more than a buzzword. It’s an umbrella term without a solid definition, and as such can be confusing. This blog aims to break down the complexities of the sector and discuss what goes into Fintech.
Part of the problem in understanding new sectors that encompass innovative technology, is the need in the business community to understand terms in black and white. It’s natural to want to be able to quickly define something and label it accordingly. However, Fintech can be more complex, and requires a certain flexibility in its definition.
What is a Fintech company?
Fintech is a portmanteau of ‘financial technology’. The most commonly assumed example of a Fintech company is an agile start-up launching direct financial services through innovative tech. Many Fintech companies do come under this definition, and in broad terms, tend to be agile disruptive smaller businesses pitting themselves against traditional financial providers.
However, lots of well-established financial businesses are also utilising Fintech behind the scenes. Innovative companies are working with Fintech consultants and data scientists to improve services by way of apps, banking-as-a-service (BaaS) and myriad delivery models.
What does a Fintech company provide?
One of the most confusing aspects of Fintech for newcomers is whether it’s a term used to describe companies that provide technology, or companies that provide the end service directly to the user.
In fact, both of these kinds of businesses come under the banner of Fintech. Some deliver financial services to customers using digital platforms, and others use the technology in different ways to create services for the end user.
A tech provider might deliver a product using a service model but is still ultimately delivering financial services. Fintech is creating new business models, new uses of technology, new apps, products and processes all the time across different categories. I’ve broken some of these categories down to give an overview below of how they fit into the Fintech sector.
Online and peer-to-peer payments
One of the most visible and popular sectors within Fintech is payments. People are now used to paying using non-traditional formats, such as PayPal, Apple Pay and many others.
Allowing people to make fast, secure, online payments straight to each other, without necessarily using traditional channels is a solid example of the practical use of Fintech to improve services.
It also allows businesses to scale up their operations much more quickly than ever before. For example, companies like Lyft and Uber use digital payments for procurement, payroll and the service itself. This gets rid of the delays that traditional channels impose on moving money between business, employees and consumers.
Banking and Fintech can be difficult to delineate, as the former is something that is regulated and licensed. If we think in these terms, it’s possible to argue that there are few true ‘banking’ Fintech operations, in that they offer all the services of a traditional bank independently
There are, however, lots of companies that work in different parts of the banking process. For example, one Fintech company may offer services to open accounts quickly and easily, and transfer money. Somewhere along the way, they will most likely be working with a licensed bank or financial institution.
There are a few hybrid technology/banking companies. For example, GreenDot in the US and solarisBank in Germany are primarily technology companies that own and operate a complete banking entity. These hybrids are in the minority, with most Fintech businesses enabling parts of the banking process.
This is another category in this sector that customers use freely already, due to its much greater levels of convenience. Both individual customers and companies can use tech to apply for and get all kinds of loans, from a mortgage to a car loan, without ever setting foot in a bank.
As with banking, Fintech companies often work within a chain that includes entities that comply with regulations. The opportunity for disruptive Fintech companies is that they can act as brokers and move the money around much more quickly.
Personal investment and finance
Another category within Fintech aims to help people make decisions to improve their investment decisions and personal finances. This includes tools that compare deals for loans, investments and credit cards, as well as tools that help people manage their personal finances.
You’ll find Fintech companies within every aspect of financial services, from blockchain and cryptocurrency to tax and crowdfunding. Part of the difficulty with this sector is its size. There are Fintech companies across all kinds of companies and services, and many remain in the background working behind the scenes. We work in a complex, demanding and extremely collaborative corporate world, and the financial services sector is burgeoning thanks to the advances facilitated by Fintech.