Fintech

If you read the finance or technology pages of the news, you’ve probably heard some buzz around “fintech”. If you haven’t, there’s a good chance that you’re using it without realising it.

What is fintech?

Put simply, fintech is a portmanteau of “finance” and “technology”. Seems simple enough, but what’s new about it? From the stock market to credit cards, technology has played a central role in finance for a long time, but fintech isn’t just an in-vogue bit of jargon for systems we’ve used for as long as anyone can remember. In fact, when people use the term fintech they’re generally referring to the disruptive potential of new technologies to change the way we use financial services.

Fintech has grown out of the fertile (and profitable) tech start-up scene that’s exploded in the last decade. The real catalyst, however, has been the recent regulations in the EU and US that are forcing banks to share their data with third parties. Previously, banks have held tightly onto the knowledge of where and how their customers spend their money, but all of this is set to change. The new regulations are terrible news for their data monopoly, but a great opportunity for start-ups to capitalise on the shift towards “open banking”.

Before we go on, it should be noted that customers still have control over who has access to their data – it won’t be shared with third parties unless they approve it. But more and more reasons are emerging as to why they should.

 

What will fintech change?

Fintech is still in its relative infancy; it’s hard to predict far in advance because technology and our usage is continually developing. Fintech probably won’t do away with banks entirely, but the new technology and regulations do offer the chance to re-evaluate our expectations of finance.

At the moment, fintech services are proving to be especially helpful to smaller enterprises that have previously been at the mercy of financial institutions. Trading between different currencies, for example, is costly because banks have been able to set punitive exchange rates and add their own fees on top of each transaction.

In these gripes, start-ups have seen opportunities. TransferWise, for example, facilitates peer-to-peer exchange, where small transactions are matched with people in other countries who want to make mirror transactions.

With a bit of creative thinking, there are real gaps in the market that fintech could fill. It will be interesting to see how the big institutions respond: will they try to resist and disparage or will they accept the changing wind and pour all of their resources into developing fintech services of their own?

 

Fintech culture

From a consumer perspective, fintech compliments our love of smartphone culture. It’s not dissimilar to social media in that it creates platforms and connects users with matched interests. Indeed, developers have made chatbots like Plum, Chip and Cleo that can give you financial advice over Facebook Messenger.

As modern consumers we now expect our services to be convenient, efficient, customisable and integrated. Fintech will extend this expectation to our finances. If anything, it’s surprising that the old way of doing things has survived this long: a decade after the 2008 crisis. Soon keeping our cashflow and savings in one or two fixed accounts may seem as outdated as stuffing it under the mattress.

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