Fintech is skyrocketing in popularity, posing the first serious challenge to legacy financial institutions. What is it & how does it work? Find out here.
What is Fintech & How Does it Work?
People used to stand on the corner of a city intersection and see their options for banking. On one side of the street, there was this national bank; on the other side, there was that regional bank. How your money was handled, your mortgage rate was determined, your investments were managed – everything was contingent on which side of the street you chose.
Thankfully, that’s changing.
Fintech is skyrocketing in popularity, posing the first serious challenge to legacy financial institutions. In this article, let’s review the basics of fintech. What is it, and how does it work? If you’re curious about the current financial landscape, consider this a beginner’s resource.
What Is Fintech?
Fintech is a portmanteau of “financial technology.” Broadly, it refers to technologies that improve financial services – either by making them faster or more accessible, automating certain processes, or delivering services in a more user-friendly way.
Often, however, when you hear someone refer to “fintech,” they’re talking collectively about the companies and platforms that leverage financial technology. For instance, you might hear: “2022 has been a banner year for fintech.” (Which is true, by the way).
How does fintech work? Let’s explore a few common value props you hear from fintech companies.
It Presents an Alternative to Legacy Financial Institutions
Legacy financial institutions (i.e., the big banks on the corner of the street) have enjoyed a near-total monopoly on the common person’s finances for centuries. Now, with the advent of decentralized cryptocurrency, the ascendancy of secure blockchain technology, and almost complete internet penetration across demographics, people are increasingly turning to digital solutions as an alternative.
For example, take the recent class on personal finance and investment apps, like Green Dot, Coinbase, and the headline-attracting Robinhood.
It Streamlines Processes
Fintech companies streamline several onerous or time-consuming processes involved in banking and investing. A fintech app might offer investors a way to quickly buy and sell stocks, or an easy way to transfer money (PayPal is a popular example). Some fintech helps streamline company processes, like spend reconciliation and payment authorization.
Proptech (a close cousin of fintech dealing in real estate technology) can even streamline the process of buying and selling a home. “We’ve massively simplified the whole process,” says Regan McGee of his company Nobul.
“People think buying and selling real estate is complicated, but that’s a way for agents to justify their fees.” McGee’s company leverages AI-powered algorithms to match consumers with real estate agents, proving that technology can improve even the most complex consumer transactions.
The Bottom Line: Accessibility, Affordability, and Transparency
There’s a common theme in all fintech and fintech companies, whether it’s a personal finance app or real estate digital marketplace: they bring accessibility, affordability, and transparency to a traditionally exclusive, cost-prohibitive, and opaque industry.
Fintech offers a simpler way to handle all things related to money – sending it, trading it, tracking it, and using it wisely to buy your first home.