What is Fintech? The Main Types of Fintech and How They Improve Our Lives
Read on to find out about the digital labyrinth that is the Fintech ecosystem, and how its widespread adoption is impacting lives.
Fintech Rising
You may have purchased cryptocurrency on an app, split a bill using an e-wallet, or planned your finances and investments using your online banking platform. That is Fintech, working behind the scenes to bring its magic, expediency and efficiency to your fingertips.
Many people have incorporated Fintech into their daily lives. In a recent report, an average of 64% of consumers globally have adopted fintech services, with 75% using digital payments and transfer services, and two-thirds of financial transactions being conducted online. More people now use Fintech services than social media platforms.
Fintech is on the rise, and its increasing adoption is reforming the way the world does finance. Some have coined this movement the fourth industrial revolution: with end-to-end digitization of all assets and integration into a digital ecosystem, the world is going digital, financially. With Fintech, we get greater access to our money, our banking accounts, investment options, and transaction and transfer services. Fintech improves lives, even reaching those underserved by traditional finance.
With Fintech riding its wave of growth, the world continues to move to a digital-first economy. In this article, we will look at the main types of Fintech, how they function, and the ways in which they are revolutionizing the financial landscape.
What is Fintech?
Fintech is a hybrid of the words finance and technology. The umbrella term refers to any application, software or technology that aids people or businesses to digitally access and manage their finances.
Since its advent, Fintech has helped consumers overcome financial challenges and meet financial goals. Fintech has become a common way to approach finance; consumers have come to depend on Fintech for a range of financial uses, including banking, investments, transfer services and everyday management. According to Plaid Fintech Effect Survey 2022, consumers commended Fintech as: saving them time (58%), helping them feel in control of finances (48%), saving them money (46%), reducing stress in managing money (34%), helping them recover from financial mistakes (27%).
Through the use of technology, Fintech transforms the way consumers interact with finance. Most notably, Fintech has helped consumers gained greater control over and do more with their finances. Here are the different types of Fintech and their positive impact on our lives.
Fintech Banks
There has been a mainstream adoption of Banking-as-a-Service (BaaS). This is one of the most main early components of the Fintech ecosystem. Traditional banking features like secure account opening and deposits are made safe with technology. There have also been a flurry of neobanks in the market, offering flexible checking and high-yield accounts, all at low fees, to provide enhanced banking for consumers. This new way of banking offers unprecedented convenience, along with superior management and planning for consumers.
The majority of banks with assets exceeding $1 billion would have rolled out ancillary digital banking systems for consumers.
Digital Payments
The rise of cashless payments have improved and increased financial transactions. Since the pandemic, cashless payments have become the norm. In McKinsey’s 2023 Digital Payments Consumer Survey, more than nine out of ten consumers say they have used some form of digital payment over the course of the year. Aside from money transfers and payments made online, there is a growing category of online purchases. Notably, there has been a recent growth in in-app and in-store digital payments. This means consumers are turning to digital payments even when shopping in brick-and-mortar stores. For instance, Stripe, an online payment processing platform, allows consumers and businesses to process payments in-store and online seamlessly.
This signals a move towards an exclusively digital payment system, reflecting growing consumer trust in the reliability and efficiency of digital payment methods, with many viewing them as even safer than traditional payment modes.
Personal Financial Management
Personal Financial Management app (PFM) apps help consumers organize their finances on a single dashboard, making it easy to plan ahead and keep up-to-date monetarily. Consumers will experience greater ease with managing, budgeting, and investment-planning. There are various approaches PFMs take to assist consumers to successfully financial-plan. Some leave the planning to consumers; others, like Copilot, provide a holistic overview of consumers’ financial health and net worth, helping them identify where and how to make adjustments. Another example is Brigit, a Fintech app that aims to build financial health for consumers through budgeting tools, automated alerts, interest-free cash advances, along with an overview of their money.
PFMs can be beneficial in helping consumers accumulate and grow wealth.
Wealth Management
There are various Fintech wealth management apps that assist consumers to grow their financial assets under management, while delivering sound financial advice at the same time. Examples of such apps include Stash, a subscription-based investing platform that helps consumers invest and save for their future, and Atom Finance, a suite of tools that allows users to research and track investments in one platform. These Fintech services help everyday people grow their wealth, potentially reducing widening wealth gaps and addressing other socio-economic issues in society.
Fintech Lenders
Fintech lenders use advanced technology and algorithms to provide a full and accurate picture of applicants’ income information, account balances and credit history. It can be time-consuming and difficult for traditional lenders to obtain such information, often creating pitfalls of over-lending, higher default rates, and under-lending to underserved applicants. Certain Fintech lender apps also have features that connect borrowers’ accounts to safely receive and repay loans. Others, such as SoFi, Prosper and SoLo, avail of technology to provide alternative consumer-friendly options like peer-to-peer loans.
These Fintech lenders have streamlined stuffy loan processes to offer fuss-free, easy lending solutions both to individuals and businesses.
Embedded Finance
Embedded finance refers to financial solutions embedded within non-financial products and services. A popular example of embedded finance is Atome Financial, a leading deferred payment provider across Southeast Asia that has supported USD1.5 billion worth of consumer purchases in 2023. Embedded financial services like Atome are supporting growing consumerism across thriving new economies. These apps function through API integrations, embedding their services directly on user experience sites of non-financial companies.
This category of Fintech is expected to skyrocket in the coming years. The providers look to offer consumers new and diverse modes of approaching finance.
Fintech Marketing Solutions
In the relatively new market of Fintech, new and inventive forms of marketing approaches may be required to achieve desired market reach. Digital-first strategies like inbound marketing, brand campaigns, search marketing, digital referral programs, social media reviews and market research can help your brand gain better traction with consumers. To get comprehensive digital marketing solutions for your Fintech business, engage a specialised Fintech marketing agency like Splash and Drips! With our unique strategy that blends strategy and creativity, we create data-driven marketing campaigns proven to increase market awareness, engagement and conversion.
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