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FinTech is most commonly known as the abbreviation for the term “financial technology” and the name given to an emerging and rapidly growing financial services sector. Financial technology is often used to describe any technological innovations within the financial industry, ranging from banking and investments, all the way through to Bitcoin and other cryptocurrencies.
With new technologies come new businesses, and so financial technology companies were born. The question is, however, whether these businesses and the technologies on offer through them are changing the industry for the better, or are they simply a disruption to an already functioning economy?
How are fintech companies changing the financial industry?
One of the biggest changes that FinTech is having on the financial industry is arguably that the processes used to get things done are changing drastically. Bulky computers, paper money and human interaction are being changed rapidly and replaced by entirely digital interfaces.
The good news for FinTech companies, of course, is that financial services are necessary all over the world and consumers and businesses alike are all looking for alternative, more efficient and faster ways to get things done.
Practically every type of financial activity, whether it be payments and transfers, retail banking, financial management, markets and exchanges or something else entirely, are all vulnerable to change, and FinTech companies are all setting their minds to re-imagining each and every process that can and will be done digitally.
Is it a good thing?
It’s important to remember that from its conception until now, FinTech has been thought of as ‘disruptive’ to traditional banking and financial methods. The question is, however, whether the term is truly synonymous with what it’s doing to the industry. Some businesses have seen the need to evolve and have transitioned from a more traditional financial institution business into a financial technology company.
Disruption suggests an unwanted change, but financial technology and FinTech companies are bringing a whole new set of tools to the markets. These tools are working to solve some of finance’s most difficult problems, from improving customer experiences, to back-office functions that take up time and funds that a financial institution may not have.
Financial technology offers a way for financial institutions to reconnect with their customers in a way that benefits them both. Customers and trade partners can experience a smoother, easier experience that is perhaps even more personalised, while businesses have the benefit of a more efficient service that can help to bring in more revenue and business overall.
What does the future look like?
If we go by the fact that global investment in FinTech tripled to $12.21bn just in 2014, it’s clear that financial technology is having a huge effect, and has the potential to continue to have a huge effect on financial institutions in the future.
While it still isn’t completely clear as to whether these FinTech companies will prove to be more of a challenge or an opportunity to the financial industry, it is at least clear that plenty of companies are seizing this new opportunity with both hands and trying to make the most out of what is available to them.
Financial technology could go on to improve transparency between banks and their partners and traders, and between businesses and their customers, building upon relationships and improving investment opportunities. The future might not be particularly clear, but is definitely exciting, and well worth keeping an eye on over the coming months.