What is fintech?

It is also used interchangeably with the term fintech startup, which refers to a company whose core capability is in the development and/or delivery of fintech products and services.

As smartphones and other digital devices have gained popularity, fintech use cases have increased steadily. Today, popular mobile apps help people set financial goals, apply for mortgages, file taxes and much, much more. At the enterprise level, businesses across the financial industry are constantly on the lookout for ways to deploy fintech to increase their capabilities and offer more products and services to their customers.

The term ‘‘fintech,’’ a combination of the words ‘‘finance’’ and ‘‘technology,’’ was initially used by banks to describe technolog that helped them track and manage their clients’ accounts. However, in the last five years, the term has shifted to include more consumer-related services, such as apps and software that are used to create budgets, track spending and buy and sell stocks. Today, the term fintech can be used to describe technologies, services and companies in the financial sector that focus on a variety of capabilities, including retail banking, financial education, fundraising, cryptocurrencies, investment management and more.

As smartphones have crept into more and more areas of our lives, many industries have felt pressure to digitize more of their capabilities and services. From ride-hailing apps and refrigerators that know when you’re out of milk, to virtual classrooms and chatbots, digitization is everywhere you look. Fintech is just another example of an industry (the financial industry) moving steadily into the digital age.

When it comes to digitization, banks and financial institutions started slowly, automating and digitizing processes that had been done manually for years. The ability to open a new account, conduct a money transfer and pay for goods and services online were some of the first breakthroughs. Today, the pace of innovation has increased to the point where some banks don’t have physical infrastructure at all. Digital banks(or neobanks, as they’re commonly referred to) offer fee-less, digital-only banking options for customers that don’t require a physical location.

Fintech has also helped expand banking into traditionally underserved communities. For example, according to a report by the Brookings Institution, over 90% of Hispanic consumers use fintech, along with 88 percent of African Americans and 79% of Asian consumers.

Fintech has also played a big role in driving growth, allowing financial institutions to offer certain services 24/7 with the use of chatbots, rather than physical employees. This helps cut down on overhead while still giving customers access to critical services around the clock rather than just during traditional banking hours.

Fintech products and services provide many tangible benefits to both consumers and businesses. For consumers, fintech has brought innovations in the digital payments space as well as new ways to manage and optimize personal finances. At the enterprise level, fintech helps automate and streamline business processes and speed the delivery of new digital products into the hands of customers. Here’s a look at the top three benefits for each audience, starting with consumers.

1. Seamless access to finances: One of the biggest benefits of fintech products for consumers is round-the-clock access to their finances. Whether trading stocks, transferring money or making a last-minute purchase, fintech lets users conduct financial transactions when and how they need to.

2. Highly secure transactions: As the laws and regulations around fintech increase, so do the security requirements fintech applications must follow to be allowed to enter the market. In addition to minimizing the physical theft or loss of a credit card or cash, fintech offers customers robust cybersecurity solutions that protect them from hackers. Blockchain technology, for example, is a relatively new fintech innovation that uses a distributed ledger to ensure the validity of complex, multiparty, online transactions.

3. Increased access to credit: Digital lending—the process of applying for and receiving funds through a digital process—is growing quickly, with a compound annual growth rate (CAGR) of as much as 16.7% according to Allied Market Research. Fintech solutions make it possible for more borrowers to access a wider pool of lenders digitally than they could through traditional financial services channels. Some fintech startups even offer credit to individuals with poor or non-existent credit ratings.

1. Improved business processes: Fintech capabilities have helped streamline business processes by enabling the automation of mundane tasks associated with banking services. Additionally, businesses who operate fintech applications have seen their transaction and investment processes significantly speed up when their customers have 24/7 access to their accounts via mobile apps.

2. Reduced time-to-market for new products: Launching new services and capabilities in response to customer demand is much easier for financial institutions who have made investments in fintech. Given the tens of thousands of fintech startups innovating in the space, there are often already off-the-shelf products available, with no additional infrastructure required, when a new customer need arises.

3. Better customer retention: Businesses that utilize fintech intelligently can give their customers a delightful and highly personalized digital experience that mirrors popular apps from other sectors like Netflix and Amazon, increasing the likelihood they will remain loyal and continue to use their products and services.

Almost all fintech is delivered to users in the form of an application that can be easily downloaded and used with a smartphone, tablet or PC. There are many different kinds of fintech applications, but they all rely on the same, underlying technology: a combination of application programming interfaces (APIs), mobile applications and web-based services.

APIs: Fintech apps depend on specifically coded APIs to safely connect bank accounts and other highly sensitive financial data belonging to customers. Finance APIs enable the sharing of financial data, the transfer of funds, verification and other critical functionalities that make digital banking possible.

Mobile applications: Fintech mobile banking applications are the digital gates through which customers access their funds and perform their desired transactions. While fintech apps must be secure to prevent fraud attempts or the compromising of customer data, they must also provide a swift and seamless user experience to remain competitive.

Web-based services: Most fintech offerings have some kind of web-based presence in addition to an app. This allows customers to access their accounts via an online log-in on a web browser.

Fintech products and services are typically divided into five categories according to the kinds of functionality they provide:

Digital banks: Banks are one of the most critical components of any financial system, so digitizing their products and services has had big repercussions for both consumers and businesses. Fintech banks have heavily influenced the digital journey of the financial sector with innovations like improved user verification, ledgers (like blockchain) that enable complex, multi-party transactions, and disruptive start-ups (like VaroOffer) that offer their services entirely online or through and app.

Digital payments: If you ordered coffee, bought a product off Amazon or subscribed to a streaming service recently, your transaction was powered by fintech. Fintech underpins all digital and mobile payment solutions by safely and securely connecting bank accounts with a customer’s digital device of choice. At the enterprise level, Fintech helps companies with wide range of tasks, including payroll, taxes, accounting and more.

Personal finance: Personal finance, also known as personal finance management (PFM), is a term that encompasses services like creating a budget, saving money and planning for retirement. Many fintech start-ups, such as Dave and WealthSimple, educate people about their money while providing straightforward tools to help them reach their financial goals.

Investing: Fintech products and services are all over the wealth management sector. The most popular ones, like RobinHood and Atom Finance, offer customers ways to trade stocks right from their phone.

Lending: It used to be that customers who wanted to take out a mortgage or purchase a car on credit had to physically enter a bank’s location, meet with a loan specialist, fill out paperwork and wait. Now, fintech companies like Rocket Mortgage and SoFi allow customers to apply for loans and credit by answering a few simple questions on their phone, then let them know within hours or even minutes if they’ve been approved.

Like many other industries, the rise of new technologies, especially artificial intelligence (AI) and machine learning (ML), are having a big influence on fintech. For customers, AI- and ML-powered “learning” apps help them make smarter decisions about purchases, showing them how everything they buy impacts their long-term financial goals.

On the enterprise side, AI in finance uses advanced algorithms and ML to analyze data, automate tasks and improve decision-making for financial institutions. Additionally, AI powered chatbots, like ChatGPT, are playing a big role in helping banks better serve their customers’ basic needs while eliminating the cost of employing entire customer service centers or local branches.

Given the sensitive nature of the information financial institutions collect from their customers, the financial industry—not just fintech specifically—is one of the most regulated in the world. In the US, the Department of the Treasury sees fintech as creating many new risks for banking customers along with the added services it provides.

Topping these worries and spurring much of the new regulation in the industry are concerns about data privacy and secure transactions. The rise of cryptocurrencies, such as Bitcoin, presents another area of apprehension as many new fintech products and services seek to leverage customer interest in them.

As one of the buzziest areas of the entire financial services industry in recent years, fintech use cases are growing every day. According to Statista, there were more than 13,000 fintech companies in the North America alone in January of 2024—at least 1,500 more than the previous year. Here are some examples of the most popular kinds of fintech products companies are building.