FinTech Is Here to Stay

December 10 , 2020

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FinTechs have been touted as the next big advancement to change the world. In 2020, after decades of innovation culminated alongside a global pandemic and a worldwide economic crash, FinTech stands stronger than ever as we innovate our way to “a new normal.” 

FinTechs are establishing market share at an astounding rate. From the rise of retail trading apps like Robinhood to the growing popularity of buy now, pay later financing at the point-of-sale, FinTechs are proving they are here to stay. Let’s dive deeper into how these unicorn companies are transforming the way we live. 

What is FinTech? 

FinTech, a portmanteau of 'financial technology’ describes technology, software, and services that enable modern banking and finance. The FinTech moniker encompasses many types of companies, but mainly focuses on financial companies using the latest technology, such as the internet of things (IoT), mobile based technology, software technology or even adapting new cloud based technologies.

FinTechs have built the bridge between dozens of applications and changed the way businesses both operate and deliver their products and services to consumers. This wave of new technology is changing the world as we know it, and daily tasks like sending someone money or paying for goods at a store are becoming that much easier and quicker.

FinTech uses

The emergence of FinTechs hasn’t just changed the way of modern banking, though. The industry is both disrupting and enhancing the following:

Retail trading 

Trading securities is a staple of any prominent capitalist economy and has been a major industry for decades. However, the way that traders operate—even who is now considered a trader—has completely transformed since the dawn of Wall Street in the 18th century. Gone are traders swapping slips of paper and here to stay are complex algorithms and automated technology. Enter retail trading.

Retail trading has really boomed over the past few years with platforms like Robinhood, WeBull, and Think or Swim. These platforms, especially Robinhood, have increased the ease in trading and adapted principles of gamification to keep their market share. Business Insider reports how retail traders make up nearly 25% of the stock market activity following COVID. 

In addition to creating a new type of trader, these platforms have put their resources behind breaking barriers of entry for casual traders. Most notably, many of these innovative FinTech platforms have reduced or eliminated trading fees due to a more cost-effective and streamlined operational model. FinTech is empowering every individual to trade and follow financial markets regardless of income or how much liquidity they have. This type of accessibility is only possible with the rise of FinTech.

Insurance

The insurance industry is seen by many as the cornerstone of American enterprise. Some of our favorite television advertisements and slogans are born out of the insurance industry. But it’s not just corporate mascots that are making an impact in insurance. It’s the technology.

An innovative segment colloquially known as InsurTech, is on the rise. Thanks to this innovation boom, people no longer have to wait days to get insurance quotes. Much like decisions on loans, credit cards, and mortgages, consumers can get quotes on insurance within seconds. 

This shift changes the way consumers are approaching the idea of purchasing insurance as consumers don’t necessarily associate big insurance companies with trust and reliability like they used to. The biggest change to how consumers approach purchasing insurance is the shift to a pay-per-use model versus the historical model of collecting premiums regardless of the consumer’s use. This innovation is only possible because of the data that is now available due to the emerging technologies in FinTech.

Personal finance

One of the most common uses for FinTech is personal finance apps for consumers. With leading apps like Mint, Personal Capital, Tiller, and YNAB, FinTechs are focusing on key consumer trends in today’s generation: financial literacy and debt management. 

Consumers no longer have to spend hours making spreadsheets or keeping monthly budgets. Apps like Mint let consumers connect to their bank accounts and track their spending habits while allowing them to set limits on each spending category. They also notify consumers when they are spending too much money in a specific category. These and other similar tools allow consumers to better understand their personal finances, spending habits, and manage debt.

Consumer lending/banking

Only 10 years ago, people would need to go into a physical bank branch if they wanted to deposit a check. Now, with modern technology not only can someone deposit checks from their smartphone, but they can manage their entire banking experience on-the-fly. Consumers don’t need to spend hours or even days trying to open a loan or get a credit card, it can now be done instantly thanks to the latest cloud banking technology. 

These innovations led to a new type of bank, often called challenger banks. Challenger banks are branchless digital banks that spend most of their resources on creating smooth interfaces and optimized user experiences. Many traditional banks are facing these challenger banks head-on—and investing heavily in digital innovation and striving to provide omnichannel financial products and services—despite challenger banks like N26, Revolut, and Monzo encroaching on global market share. 

Traditional banks must now decide whether to build this technology internally, often at significant costs and on long timelines, or partner with an outside technology provider. Many are choosing the latter option to defend their market share and are leaning on other FinTech companies to deliver this digitization at a fraction of the cost and time of building this technology in house.

Cryptocurrency and blockchain

Cryptocurrency and blockchain are on a meteoric rise.  Cryptocurrency is a type of digital currency built on blockchain technology that uses digital files as a form of payment. Cryptocurrency exchanges such as Coinbase and Gemini are serving as a platform for consumers to buy cryptocurrency like bitcoin, ripple, ethereum and litecoin. Blockchain services are working to reduce fraud and establish governance within the broader cryptocurrency arena. Safe to say that FinTech is being pushed to the edge by cryptocurrency and blockchain.

Mobile payments

It’s more than likely someone has asked you to “Venmo me” to pay a debt owed. Even five years ago, this type of jargon would be lost on many. However, mobile payment apps like Venmo and Zelle have become common household words nowadays, filling a need in the market left unfilled for far too long. Now that nearly everyone has a mobile device at their fingertips, payments innovation has taken off.  

Consumers can instantly send people money now through Venmo, Zelle, CashApp, all for free. This type of technology now opens the door to something called embedded finance where big companies like Apple, Amazon, Alibaba can also join the game. Sending, receiving and transacting in day to day life is just becoming easier and more convenient everyday.

fintech-transaction-volume

What are the risks of FinTech?

Security. Security. Security. As FinTech and traditional financial institutions start exposing their business and operations to more technology, they are also exposed to new security risks with their data. Historically, risks have usually revolved around human risk and internal security risk, but in today’s technology-driven world there are a lot more risks to be worried about such as data breaches, application security risk, money laundering risk, digital identity risk, and cloud based security.

The increased availability of data facilitates growth and innovation for many leading FinTechs. Data plays an important role in any domain, but in financial institutions, data is critical. FinTechs are constantly holding personally-identifiable information (PII). Without the proper security measures in place, this information can easily end up in the wrong hands. 

Along with data, mobile devices are another catalyst in the growth in FinTechs. Many of these new FinTech innovations are being used on mobile apps by consumers. This presents a clear security vulnerability with logging in, saving passwords, PINs and other pertinent information. It is growing increasingly easier for a hacker to impersonate someone else by getting a hold of their digital identity and taking actions under their name. These types of risk are one of the main reasons companies need to make sure they are mitigating exposure and staying covered at all times!

Mitigating these new security risks

In a world of innovation, there are intuitive white label tools in the fraud, verifications and digital identity space. Financial institutions should ask their vendors and technology providers the important questions: how do they manage their data? How do they protect PII for their customers? Do they have fraud prevention features and how comprehensive is their reporting? 

Over the last few years, privacy laws have constantly been evolving, each year bringing on new regulations and updated industry standards. Industry leaders are constantly monitoring these changes and making sure to redefine the benchmark.

What does FinTech hold for the future?

The future is digital. These technologies are moving from nice-to-have to need-to-have faster than we can imagine.  As technology keeps improving and companies keep pouring millions of dollars into research and development, no one knows what else is on the horizon. 

There are many different macroeconomic and political factors such as interest rates, financial industry regulations, and data privacy and protection laws that may be a catalyst for innovation. Some even believe our economic recovery will be led by FinTechs.

The key will be how FinTechs gain market cap in their niche while staying profitable and innovative. Investors will be taking a close look at companies' efforts on how they can navigate this maze of optimizing costs associated with customer acquisition and product development. 

Overall, FinTech has become a regular household vocabulary term and has impacted our lives in more ways than we realize. From banking to insurance, everything has and will be impacted by FinTech. With innovation like blockchain and cryptocurrency, our daily tasks might look a lot different in ten years. FinTech is growing and is definitely here to stay.

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Anurag Vuthunuri

Anurag Vuthunuri works on Product Development as part of the Client Services Group. With a background in Finance and Analytics, Anurag believes FinTech is the future of how we operate and live our lives. He believes that the innovation in financial technology is far from over, with big booms in Buy Now and Pay Later technology, transactional technology is just getting started like many others!

FinTech Is Here to Stay

Posted by Anurag Vuthunuri on December 10 , 2020
Anurag Vuthunuri
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FinTech Is Here to Stay

FinTechs have been touted as the next big advancement to change the world. In 2020, after decades of innovation culminated alongside a global pandemic and a worldwide economic crash, FinTech stands stronger than ever as we innovate our way to “a new normal.”

FinTechs are establishing market share at an astounding rate. From the rise of retail trading apps like Robinhood to the growing popularity of buy now, pay later financing at the point-of-sale, FinTechs are proving they are here to stay. Let’s dive deeper into how these unicorn companies are transforming the way we live.

What is FinTech?

FinTech, a portmanteau of 'financial technology’ describes technology, software, and services that enable modern banking and finance. The FinTech moniker encompasses many types of companies, but mainly focuses on financial companies using the latest technology, such as the internet of things (IoT), mobile based technology, software technology or even adapting new cloud based technologies.

FinTechs have built the bridge between dozens of applications and changed the way businesses both operate and deliver their products and services to consumers. This wave of new technology is changing the world as we know it, and daily tasks like sending someone money or paying for goods at a store are becoming that much easier and quicker.

FinTech uses

The emergence of FinTechs hasn’t just changed the way of modern banking, though. The industry is both disrupting and enhancing the following:

Retail trading

Trading securities is a staple of any prominent capitalist economy and has been a major industry for decades. However, the way that traders operate—even who is now considered a trader—has completely transformed since the dawn of Wall Street in the 18th century. Gone are traders swapping slips of paper and here to stay are complex algorithms and automated technology. Enter retail trading.

Retail trading has really boomed over the past few years with platforms like Robinhood, WeBull, and Think or Swim. These platforms, especially Robinhood, have increased the ease in trading and adapted principles of gamification to keep their market share. Business Insider reports how retail traders make up nearly 25% of the stock market activity following COVID.

In addition to creating a new type of trader, these platforms have put their resources behind breaking barriers of entry for casual traders. Most notably, many of these innovative FinTech platforms have reduced or eliminated trading fees due to a more cost-effective and streamlined operational model. FinTech is empowering every individual to trade and follow financial markets regardless of income or how much liquidity they have. This type of accessibility is only possible with the rise of FinTech.

Insurance

The insurance industry is seen by many as the cornerstone of American enterprise. Some of our favorite television advertisements and slogans are born out of the insurance industry. But it’s not just corporate mascots that are making an impact in insurance. It’s the technology.

An innovative segment colloquially known as InsurTech, is on the rise. Thanks to this innovation boom, people no longer have to wait days to get insurance quotes. Much like decisions on loans, credit cards, and mortgages, consumers can get quotes on insurance within seconds.

This shift changes the way consumers are approaching the idea of purchasing insurance as consumers don’t necessarily associate big insurance companies with trust and reliability like they used to. The biggest change to how consumers approach purchasing insurance is the shift to a pay-per-use model versus the historical model of collecting premiums regardless of the consumer’s use. This innovation is only possible because of the data that is now available due to the emerging technologies in FinTech.

Personal finance

One of the most common uses for FinTech is personal finance apps for consumers. With leading apps like Mint, Personal Capital, Tiller, and YNAB, FinTechs are focusing on key consumer trends in today’s generation: financial literacy and debt management.

Consumers no longer have to spend hours making spreadsheets or keeping monthly budgets. Apps like Mint let consumers connect to their bank accounts and track their spending habits while allowing them to set limits on each spending category. They also notify consumers when they are spending too much money in a specific category. These and other similar tools allow consumers to better understand their personal finances, spending habits, and manage debt.

Consumer lending/banking

Only 10 years ago, people would need to go into a physical bank branch if they wanted to deposit a check. Now, with modern technology not only can someone deposit checks from their smartphone, but they can manage their entire banking experience on-the-fly. Consumers don’t need to spend hours or even days trying to open a loan or get a credit card, it can now be done instantly thanks to the latest cloud banking technology.

These innovations led to a new type of bank, often called challenger banks. Challenger banks are branchless digital banks that spend most of their resources on creating smooth interfaces and optimized user experiences. Many traditional banks are facing these challenger banks head-on—and investing heavily in digital innovation and striving to provide omnichannel financial products and services—despite challenger banks like N26, Revolut, and Monzo encroaching on global market share.

Traditional banks must now decide whether to build this technology internally, often at significant costs and on long timelines, or partner with an outside technology provider. Many are choosing the latter option to defend their market share and are leaning on other FinTech companies to deliver this digitization at a fraction of the cost and time of building this technology in house.

Cryptocurrency and blockchain

Cryptocurrency and blockchain are on a meteoric rise.  Cryptocurrency is a type of digital currency built on blockchain technology that uses digital files as a form of payment. Cryptocurrency exchanges such as Coinbase and Gemini are serving as a platform for consumers to buy cryptocurrency like bitcoin, ripple, ethereum and litecoin. Blockchain services are working to reduce fraud and establish governance within the broader cryptocurrency arena. Safe to say that FinTech is being pushed to the edge by cryptocurrency and blockchain.

Mobile payments

It’s more than likely someone has asked you to “Venmo me” to pay a debt owed. Even five years ago, this type of jargon would be lost on many. However, mobile payment apps like Venmo and Zelle have become common household words nowadays, filling a need in the market left unfilled for far too long. Now that nearly everyone has a mobile device at their fingertips, payments innovation has taken off.  

Consumers can instantly send people money now through Venmo, Zelle, CashApp, all for free. This type of technology now opens the door to something called embedded finance where big companies like Apple, Amazon, Alibaba can also join the game. Sending, receiving and transacting in day to day life is just becoming easier and more convenient everyday.

What are the risks of FinTech?

Security. Security. Security. As FinTech and traditional financial institutions start exposing their business and operations to more technology, they are also exposed to new security risks with their data. Historically, risks have usually revolved around human risk and internal security risk, but in today’s technology-driven world there are a lot more risks to be worried about such as data breaches, application security risk, money laundering risk, digital identity risk, and cloud based security.

The increased availability of data facilitates growth and innovation for many leading FinTechs. Data plays an important role in any domain, but in financial institutions, data is critical. FinTechs are constantly holding personally-identifiable information (PII). Without the proper security measures in place, this information can easily end up in the wrong hands.

Along with data, mobile devices are another catalyst in the growth in FinTechs. Many of these new FinTech innovations are being used on mobile apps by consumers. This presents a clear security vulnerability with logging in, saving passwords, PINs and other pertinent information. It is growing increasingly easier for a hacker to impersonate someone else by getting a hold of their digital identity and taking actions under their name. These types of risk are one of the main reasons companies need to make sure they are mitigating exposure and staying covered at all times!

Mitigating these new security risks

In a world of innovation, there are intuitive white label tools in the fraud, verifications and digital identity space. Financial institutions should ask their vendors and technology providers the important questions: how do they manage their data? How do they protect PII for their customers? Do they have fraud prevention features and how comprehensive is their reporting?

Over the last few years, privacy laws have constantly been evolving, each year bringing on new regulations and updated industry standards. Industry leaders are constantly monitoring these changes and making sure to redefine the benchmark.

What does FinTech hold for the future?

The future is digital. These technologies are moving from nice-to-have to need-to-have faster than we can imagine.  As technology keeps improving and companies keep pouring millions of dollars into research and development, no one knows what else is on the horizon.

There are many different macroeconomic and political factors such as interest rates, financial industry regulations, and data privacy and protection laws that may be a catalyst for innovation. Some even believe our economic recovery will be led by FinTechs.

The key will be how FinTechs gain market cap in their niche while staying profitable and innovative. Investors will be taking a close look at companies' efforts on how they can navigate this maze of optimizing costs associated with customer acquisition and product development.

Overall, FinTech has become a regular household vocabulary term and has impacted our lives in more ways than we realize. From banking to insurance, everything has and will be impacted by FinTech. With innovation like blockchain and cryptocurrency, our daily tasks might look a lot different in ten years. FinTech is growing and is definitely here to stay.

Anurag Bio & Headshot

Anurag Vuthunuri works on Product Development as part of the Client Services Group. With a background in Finance and Analytics, Anurag believes FinTech is the future of how we operate and live our lives. He believes that the innovation in financial technology is far from over, with big booms in Buy Now and Pay Later technology, transactional technology is just getting started like many others!

Topics: Insight