As technology continues to shape human society, financial technology–also known as FinTech–has emerged as a ubiquitous force in financial markets and the banking sector. Indeed, FinTech has enjoyed decades of hypergrowth, recently reaching $550 billion in capitalization
FinTech refers to the application of new technological advancements to products and services in the financial services industry. The scope of FinTech is vast and encompasses a wide array of applications, including managing payment services, bank accounts, and personal finances through apps, executing stock trades at the click of a button, applying for loans without visiting a financial institution, and using cryptocurrencies for transactions. The essence of FinTech lies in its ability to streamline, enhance, and often wholly transform traditional financial services. This article explores FinTech and the impact it’s having on the finance industry.
Digital Payments and Mobile Banking
The value of noncash payments, which has increased 9.5% annually since 2018, recently reached $128.51 trillion in value.9 It’s because of this rise in the adoption of cashless options such as digital wallets that major companies are discussing the pros and cons of a cashless economy.10 Increasingly popular cashless options include:
Mobile wallets: Digital wallets such as Apple Wallet and Google Pay store the information found on credit and debit cards, allowing users to make secure and convenient online payments with their mobile devices
Peer-to-Peer (P2P) payments: Platforms such as Venmo and Zelle have simplified the process of transferring money between individuals, making transactions like splitting bills or sending gifts quick and effortless
QR code payments: Companies such as Stripe and Cash App utilize QR codes that allow users to make electronic payments simply by scanning a code with their smartphone
Disruption of Traditional Banking
FinTech is also disrupting the banking sector by offering services through digital banks and neobanks. While digital banks offer banking services entirely online, neobanks offer nontraditional services.
Also known as challenger banks, neobanks are often FinTech startups that don’t have physical branches. They often partner with FDIC-insured banks to offer not only checking and savings options but also budgeting and saving services to help their customers.19 Neobanking is expected to reach over 78 million users, with an expected transaction value of $2.6 trillion, by 2027
FinTechs are on the rise, offering strong competition against previously established financial institutions. These FinTechs can grow and grow fast while some banks seem to be playing catch up. Digital payment seems to be the most popular out of the FinTechs out there. It’s almost unheard of for a college student not to have Venmo or a similar FinTech. Existing without one of these Fintechs is almost impossible. More and more people are turning to these FinTechs for their financial management. How can banks and major financial institutions compete with these new FinTechs? Is there a way to offer similar services in union with the bank? If banks offered in-house financial managing tools and education through games and apps would account holders even use them? The strategies of FinTechs need to be considered when designing new products and services in the financial world.
“Fintech and Its Impact on the Finance Industry.” SCU, Leavey School of Business, Santa Clara University, 17 Jan. 2024, onlinedegrees.scu.edu/blog/understanding-big-data-and-its-implications#:~:text=FinTech%20is%20also%20disrupting%20the,don’t%20have%20physical%20branches.
