What Is Fintech? The Definitive Guide To Basics Of Fintech
Updated 19 January 2023
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If you are interested in financial management, you may consider using finance technology. Also referred to as fintech, finance technology companies create money management tools that can help both consumers and organizations accomplish financial tasks such as accepting payments, monitoring spending, and investing. Understanding fintech and the types of fintech you may use in your company can help you make informed financial decisions and adapt as technology continues to evolve. In this article, we explain fintech, how it works, what are the types of companies that use it, and the different types of fintech.
What Is Fintech?
Fintech is a type of technology that helps both companies and the public perform financial activities such as budgeting, money transfers and stock trading. Fintech also includes payment systems and fundraising platforms. Software developers create this type of technology to track your financial activities more efficiently and easily and may help you achieve your long-term financial goals.
How Does Fintech Work?
Fintech simplifies all kinds of financial transactions for both consumers and businesses, improving the accessibility of these transactions and making them highly affordable for everyone. Fintech may also help tech companies in carrying out transactions securely over their internal networks. Fintech simplifies these transactions by eliminating unnecessary steps. As an end-user, you may get benefits like being able to deposit money into any account all over the world without visiting a bank branch physically.
Related: What Are Functions Of Financial Management? (With Purpose)
Which Types Of Companies Use Fintech?
The types of companies that use fintech include:
Companies using payment applications
Payment applications are a type of fintech that simplifies monetary transactions by reducing transfer fees and allowing people to send money via a computer or mobile device. These applications typically link to credit cards or bank accounts to access money. Payment applications often simplify invoicing, enhance the speed of transactions and offer increased accessibility for customers, which can expand a company's customer base.
A lending company offers people the chance to borrow money for major purchases, such as a house or vehicle. In contrast to traditional lending companies, fintech lenders often require borrowers to fulfil fewer conditions before sanctioning a loan. This makes the process of availing a loan simpler for the borrowers, which is why these lenders are fast becoming the preferred choice for small loans.
A key benefit of using fintech lending software for your company is the opportunity to automate the loan approval process, which can allow borrowers to receive the funds they require quickly. This technology can also provide underwriting services and can assess a borrower's credit history. Some fintech companies partner with banks to help approve loans and ensure financial security for borrowers and lenders.
Equity finance companies
Equity financing is the process of selling shares of a company to obtain funds for daily operations and investments. Equity finance companies may use fintech, such as crowdfunding applications, to connect companies with the right investors for their requirements. Offering crowdfunding fintech can help an equity finance company's clients raise funds to develop projects, pursue business ventures and achieve their financial goals.
Related: Top 10 Careers In Stock Market (With Duties And Salary)
Credit analytics companies
Credit analytics companies check credit scores to help clients prepare to apply for loans, credit card applications and rental agreements. Compared to traditional credit check services, credit analytics companies often use fintech to deliver a client's credit information quickly. This can help clients make financial decisions faster, which can motivate them to continue using the same credit analytics company for future credit checks.
Related: Essential Credit Analyst Skills (Definition And Examples)
Personal finance companies
Personal finance companies often use fintech applications to offer their clients financial advice on topics such as budgeting, saving and investing. While traditional personal finance firms might offer clients a meeting with a professional financial adviser, using personal finance fintech allows your company to teach people independent financial planning skills. This can help your company expand its client base and develop a reputation for valuing accessibility.
Insurance companies offer financial protection in the event of emergencies and accidents. They often use fintech to provide consumers with short-term insurance. For example, if you are renting a car for a business trip, you may require temporary insurance. Offering more options for insurance improves a company's chances of achieving customer satisfaction. Customers also easily access insurance services for their short-term requirements without going through the hassles of traditional insurance applications.
Related: How To Recruit Insurance Agents (With 10 Useful Steps)
Consumer banking organizations
A consumer banking organization may refer to a community bank in one location or a large commercial organization that oversees several banks. Consumer banking organizations typically issue debit cards, approve loans and provide savings accounts. These organizations may use fintech to offer reloadable debit cards to the public. This can help a consumer banking organization provide secure financial management services to anyone, which may motivate more people to become bank members.
What Are The Different Types Of Fintech?
Here are a few different types of fintech:
Cryptocurrency is a type of virtual currency that uses encryption strategies to prevent counterfeiting. While central authorities, like governments, typically support traditional currencies, cryptocurrency developers use a type of fintech called blockchain technology to secure their currencies. Companies that invest in these digital assets may trade traditional currency for cryptocurrency by using an online exchange platform. To store cryptocurrency after purchase, investors often use digital wallets.
Investing in cryptocurrency may also allow a company to:
secure the storage and transfer of currency
reduce the risk of fraudulence
eliminate the requirement for third parties
innovate the way people invest
Budget applications allow people to track their personal finances on a computer or phone. They can help your company organize money and make informed financial decisions by tracking income and recording expenses. Budgeting applications also often link to a company's bank account and give an accurate overview of the current financial situation, which can improve spending, investment, and savings decisions.
Using a budgeting app can also benefit your company by:
simplifying tracking your financial activity by automating the process
separating transactions into categories, which can then help you determine areas in which you can reduce expenses
highlighting methods you can use to save money
Related: What Is Financial Modelling? (With Benefits And Types)
A trading platform is an application that helps automate the process of exchanging stocks and other investments. This fintech allows brokers and investors to purchase, trade and manage stocks online with a computer or mobile device. There is a range of investment platform options for beginners, stock traders, and cryptocurrency investors. These platforms make stock trading accessible to users from all backgrounds and experience levels.
This fintech offers key benefits such as:
lowering the cost of portfolio management
offering financial consulting
enabling investors to buy and sell stocks with flexibility
providing investment opportunities to a wider range of people
Related: Equity Trader Responsibilities (Trading Types And Skills)
Fundraising platforms help people, organizations and causes gather monetary donations. Companies may use fintech fundraising platforms to host auctions and match donations with their own contributions. They can also use them to reach a larger audience by requesting donations online and sending notifications to past donors.
Fundraising fintech can also benefit your company by:
providing a simple way to raise money
helping you reach more people than you might through a traditional fundraiser
allowing investors from all over the world to contribute
enabling you to start a fundraising campaign with a low budget
Related: Types Of Online Marketing Jobs (With Salaries And Duties)
Self-service payment systems
Self-service payment systems are most common in stores that allow consumers to check out their own items. This is a common fintech solution that can help companies enhance the customer experience. For example, to help cashiers manage their workload, grocery stores may install self-service payment systems for customers.
Self-service payment systems can also benefit your company by:
increasing customer satisfaction
lowering labor costs
ensuring your company follows current market trends
providing more consumer independence
Online payment systems
Online shops use online payment systems that transfer money electronically. These online payment systems typically connect a company's bank account to the customer's payment method, such as a credit card. While a fintech payment system may charge a company a small fee the transactions, offering an online payment option can help expand a company's customer base.
This fintech can benefit a company by:
automating charges and payments
providing free service for your customers
offering secure money transfers
transferring funds from customers quickly
Please note that none of the companies, institutions, or organizations mentioned in this article are affiliated with Indeed.
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