Fintech. It’s a term that’s become somewhat of a buzzword over the past decade and seems to be gaining more and more momentum each year. But is it an esoteric term for the elite? Or a simple portmanteau of the financial and technology industries? We’re here to unveil the enigma surrounding fintech by exploring what it is, how it’s become so significant to the UK economy, and what’s in store for the future of this multi-billion-pound industry.
What is fintech and how does it work?
Fintech refers to the use of technology to create better financial services and products. It’s basically yet another example of how computing and automation are impacting the economy to make simpler, quicker, and more efficient products and services for customers.
The use of such technology within the finance industry has seen huge advances in insurance, wealth management, investment advice, alternative finance lending, insurance, international money transfer and payments, amongst many more.
In addition to this, fintech has also evolved to impact currency itself, as it has led to the creation and distribution of crypto-currencies such as bitcoin.
How fintech affects your day-to-day life
Whilst the use of fintech began with improving back-end systems of financial institutions, there has been a clear shift in the fintech industry over the past few years to focus on creating services or products aimed at making customers’ lives easier. This means that fintech solutions affect your day-to-day life in more ways than you might first realize.
For example, it has become common for mortgage approval and product comparison services to use fintech in order to provide you with quicker and better results that best align with your credentials. Fintech has also had a big impact on how people save and spend their money, and specifically, the investment management and wealth management sectors.
However, fintech also affects a range of industries other than pure finance. For example, if you have a black box installed in your car, this telematics device will use fintech to determine the cost of your insurance by collecting and analysing data and statistics on how you drive.
You probably also use fintech in some form each time you complete simple tasks such as mobile banking, including:
- transferring money online
- depositing a cheque using your mobile phone
- applying for a credit card online without using a bank
- opening a bank account online
- using your smartphone to make contactless payments
In fact, it’s thought that around a third of consumers use at least one or more forms of fintech in their daily lives, and 50% use fintech when transferring money and paying for services.
How fintech affects the financial services industry
Open banking is one of the many success stories resulting from advances in fintech. It refers to how banks deal with your financial information by using blockchain technology (a shared database which maintains records on computers without the use of a central ledger) to give a wider range of providers access to your financial information securely. This allows individuals to make the most of their money through financial apps and alternative banking websites regulated by the Financial Conduct Authority.
This is only done with your permission and means that banking has become more competitive than ever, as you have access to a wider range of products tailored specifically to you. This has consequently had an impact on the products available to those seeking services such as business funding, finance advice or asset management.
In addition, many fintech companies also aim to challenge and disrupt traditional banks. For example, some fintech startups, such as alternative finance lenders, work by assessing what they deem is ‘more relevant’ data than what traditional financial services companies would look at, leading to higher approval rates for their finance products.
This use of fintech has meant that alternative finance lenders are able to offer financing which is more flexible than traditional products, along with boasting faster approval rates and cheaper deals. This is ideal for small businesses or startups looking for funding. As a result, consumers generally have more choice now compared to before fintech shifted the balance in the financial lending space. This use of data science, technological innovation and artificial intelligence is, in essence, how fintech allows trailblazers in the financial sector to get ahead of the old guard.
Unsurprisingly, there’s plenty of speculation and excitement around what the fintech industry will churn out next. One of the most common predictions is that fintech will result in alternative lenders and banks working closely together in the wake of open banking, and that there will be a steady increase in the use of alternative finance as confidence in fintech grows.
Moreover, with London being established as one of the world’s top fintech hubs, it’s more important than ever to consider the implications fintech could have on your growing business.