Maybe you keep seeing the word everywhere and are wondering what the hell it is. Maybe you threw it out in a conversation to sound smart after reading a short article about it (hey, we۪'ve all done it), or maybe you۪re already deep in the game. Wherever you۪'re at, there۪s a reason why all anyone can talk about right now is Fintech. Short for financial technology, and like all the other ways new outsider technologies have completely forced change across different industries, the banking old guard should be very, very afraid. Here۪'s why you should be excited.
WTF is Fintech?
Sure we gave you the dictionary definition but what is it really? Basically fintech is a catchall term for any line of business that uses technology and software for financial activities and services. Most fintech companies are early-stage or startups founded with the goals of disrupting the existing financial system's services, and big companies that have traditionally dominated the market. From enabling a crop of sweet budgeting apps to making simple and diverse investing available for the common man, fintech is blowing up good and hard.
Fintech is a reimagining of the way we deal with money
Fintech is aimed at disrupting the way financial services currently work. This isn۪'t simply an attempt at changing traditional banking; it۪s about upending every part of the structure, from standard transactions to lending to wealth management, and more. Fintech companies also hope to take away the control that banks and finance professionals have over money and our access to it. Political leanings aside, fintech can bring parity to our current financial systems and ultimately provide the public with better, cheaper, and more efficient ways to manage all things financial.
Globally, investors think it has a lot of promise
There۪s a lot of money being pumped into Fintech right now, and calling the growth explosive would be an understatement. According to a report on Fintech and venture capital by KPMG and CB Insights, 2015 was a record year for investment in Fintech startups, with global investments reaching $19.1 billion dollars. Venture capitalist-backed Fintech companies received $13.8 billion of that.
You۪re probably already using and benefitting from Fintech
If you۪ve downloaded a personal finance management app recently, you۪ve participated in the Fintech industry. It۪'s been big in the budgeting arena with the arrival of companies like Mint, YNAB (You Need A Budget), and Digit. Money management was once something you had to hire someone to help you do or use painstaking accounting practices, but Fintech guides you through easy account setup, bank syncing, and saving procedures and it has removed any need for a middleman or major calculations.
Fintech has also simplified the way you pay for things. Chances are you۪ve sent money to friends via Venmo when you didn۪t have the cash to split a bill. Yup, that۪s fintech at work. You۪ve probably also heard of or used point of sale credit card payment processing company Square (founded by Twitter۪'s Jack Dorsey) too, that۪s fintech. Originally it was advertised to small businesses and individual merchants, but it۪s not unusual to see the device at the register at larger places now, as more businesses adopt the technology.
The changes it has made to lending and investment are really exciting
To truly understand the impact of Fintech and witness the future of the industry, look no further than what crowdfunding has allowed people with big ideas to achieve. Ordinarily, they would۪ have required bank loans that many of them would not have been eligible for. Instead of a lender running through all the ways someone۪'s plan is too risky to give them money, crowdfunding lets the masses decide on its level of innovation and also gives them a piece of the pie. Fintech has made lending collaborative, and that۪s probably why it has been so successful.
Fintech۪s movement into the world of investments is one to keep a close eye on too. Startups are making investing more accessible and less complicated for everyone. Acorns lets you invest small amounts of money, think spare change, into ETF (exchange-traded funds) and lets you be as hands-off as you want. Similarly, robo-advisers like Wealthfront and Betterment use algorithms to manage your asset allocation based on your assessment of your risk tolerance, and then take the reins from there. What once took time, meetings, and fees, is now handled easily and cheaply by advanced technology.
While it may seem like a massive explosion, we۪'re truly just scratching the surface of where fintech can go, and that۪s why you should jump on the train because we're leaving the station. Just kidding, we۪re actually in an Uber because, just like what technology did to transportation, fintech is doing to the financial world.