When you use PayPal, Apple Pay, Google Wallet or simply your credit card to make an online purchase, you the consumer, the ecommerce retailer and the banks behind the money exchange are using FinTech.
When Charles Schwab, TD Ameritrade or Fidelity Investments purchase stocks and the banks settle the securities transactions, that's FinTech.
And when you go online to find the best mortgage rates for that dream home or to refinance the one you're in, that's FinTech.
Broadly speaking, FinTech (financial technology) is anywhere technology is applied in financial services or used to help companies manage the financial aspects of their business, including new software and applications, processes and business models.
Once considered more of a back-end, data center processing platform, FinTech has in recent years come to be known as the basis for end-to-end processing of transactions over the Internet via cloud services.
FinTech is not new. It's been around in one form or another virtually as long as financial services has. After the global financial crisis of 2008, however, FinTech has evolved to disrupt and reshape commerce, payments, investment, asset management, insurance, clearance and settlement of securities and even money itself with cryptocurrencies such as Bitcoin.
"When you think about banks today, they're really technology companies if you look at where they spend their money," Eric Piscini, a principal in the technology and banking practices at Deloitte Consulting, said.
In just a few short years, the companies that provide FinTech have defined the direction, shape, and pace of change across almost every financial services subsector, according to Deloitte Consulting.
"Customers now expect seamless digital onboarding, rapid loan approvals, and free person-to-person payments – all innovations that FinTechs made popular. And while they may not dominate the industry today, FinTechs have succeeded as both standalone businesses and vital links in the financial services value chain," Deloitte said in a recent industry report.
How FinTech can be disruptive
According to Deloitte, disruptive forces that have reshaped the FinTech industry include, but are certainly not limited to:
- The growth of online shopping, which is expanding quickly at the expense of in-person shopping, leading to the dominance of online, cashless solutions for transactions.
- A shifting balance of power that swings from banks and other financial services to those who own the customer experience. Banks are eliminating in-person services and looking to FinTech and large technology companies for other ways to engage customers.
- New trading platforms that are collecting data to create an aggregated market view and using analytics to uncover trends.
- Insurance products, which are becoming more tailored to customers who, in turn, are demanding coverage for specific locations, uses and timeframes. That's driving insurers to collect and analyze additional data about their clients.
- Artificial intelligence, which now plays a role in differentiating financial services products as it replaces complex human activities.
- Transaction process improvement and middleware, both of which remain expensive. This is pushing traditional financial services firms to consider partnerships with marketplace lenders for FinTech solutions that don’t require a full infrastructure overhaul.
A new world of regulations
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