Technology has impacted every industry and every area of our lives, and finance is no exception. Technology is such an important force in finance that a new term has come about to describe it. Financial technology (fintech) is the term used to describe any new technology to improve the automation, delivery, and/or use of financial services. Fueled largely by the internet and smartphones, fintech has exploded in the last decade.

The History of Fintech

Technology is a broad term. Technically, it’s defined as “the application of scientific knowledge for practical purposes”. In this sense, the competitive and lucrative world of finance has long been at the forefront of implementing new technology. But the technology we think of today, based on computers, smartphones, and the internet, is the type of technology fintech refers to.

Fintech first saw widespread use in the finance industry beginning in the early 2000s, when major financial institutions began using fintech to improve back-end technology. But as fintech has evolved, its uses and implications have changed.

The Fintech of Today

The fintech of today looks nothing like its predecessor. One of the defining characteristics of today’s fintech is that it’s mainly focused on improving and streamlining the customer experience. This is occurring in sectors throughout finance including retail banking, fundraising, education, nonprofit, and investment management. The benefit for companies is that better and more streamlined offering not only make them more competitive, but it also reduces their operational costs.

Fintech includes the application of new and noteworthy technological advances, but it also includes activities that may now seem commonplace, especially to those of the younger generation. For example, transferring money to a friend, depositing a check with a phone, or managing investments online. Other uses of today’s fintech include crowdfunding platforms, Robo-advising, stock-trading apps, and budgeting tools and apps.

Cryptocurrencies also fall under the umbrella of fintech. Though this section of fintech may provide the most headlines, the impact of fintech on the established banking world far outweighs that of cryptocurrencies.

The Impact of Fintech on the Industry

Fintech has changed the consumer experience, but it’s also changed the landscape of the finance industry. For decades, larger and more established companies dominated the industry, but fintech is beginning to change that.

Smaller companies abound that leverage financial technology to improve, eliminate, or streamline financial services. More established financial institutions have taken notice and attempted to follow suit. While these larger organizations have made enormous strides and invested massive sums into fintech, they often still fail to compete with smaller, more nimble organizations that can pivot on a dime.

Regulatory Issues

Fintech is not without its issues, the biggest of which is regulation. Finance is a heavily regulated industry, which creates many potential concerns for fintech. These concerns have arisen in two main areas. The first relates to the technology itself and how it changes processes in such a heavily regulated industry. The second is the speed at which fintech moves. The same speed and agility that gives smaller companies an advantage over the more established institutions also put them at greater risk of coming up against regulatory issues. For example, fintech has changed the way data is processed and stored, which in some instances has made it more susceptible to attacks from hackers.

The Future of Fintech

One of the most exciting aspects of fintech to consider is how it will continue to change the landscape of finance. Much of the future of fintech is based on machine learning and artificial intelligence (AI). This technology, when used to enhance the abilities of predictive behavioral analytics, will not only learn the habits of users but may help users make better financial decisions, often without them even consciously realizing.

AI and machine learning technology may also be used to create more advanced chatbots. The advantage for customers is a simplified experience and for companies, it means fewer people need to be hired. Even now, companies have begun using this technology, though it will likely see drastic increases in their capabilities in the coming years.

Finally, future fintech may have the ability to drastically decrease instances of fraud by flagging strange transactions. Again, companies have already begun implementing this technology, but in the coming years, it has the potential to advance considerably.

The Takeaway

Fintech is exciting, but it’s not without its issues. It’s transforming the finance industry and creating a better customer experience, but it also comes with concerns over regulatory issues and data security. As fintech continues to evolve, its power to transform the industry will likely continue, but so will the industry’s need to implement fintech responsibly.

Learn more about the Rise of Financial Machines here.

This program offers a thorough, yet non-technical exposition of the important concepts associated with the FinTech phenomenon and the implications for the future of financial intermediation, banking, regulation and currencies. It is comprised of four modules covering Electronic Trading, Marketplace Lending, Big Data, and Cryptocurrencies and Blockchain.

 The New York Institute of Finance (NYIF) is a global leader in professional training for financial services and related industries. NYIF courses cover everything from investment banking, asset pricing, insurance and market structure to financial modeling, treasury operations, and accounting. The New York Institute of Finance has a faculty of industry leaders and offers a range of program delivery options, including self-study, online courses, and in-person classes. Founded by the New York Stock Exchange in 1922, NYIF has trained over 250,000 professionals online and in-class, in over 120 countries.

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