What is fintech? Fintech is short for financial technology. They usually take the form of innovative ways to leverage technology to make financial transactions easier for businesses and consumers.
Most types of fintech are still relatively new, developing slowly over the past couple decade and only becoming truly mainstream over the past few years. Fintech integrates finances and banking with technology, aiming to make operations streamlined and more automated.
If you have used PayPal, Venmo or your bank’s smartphone app, you have participated in the growth of fintech. However, fintech extends far beyond payment apps. Now you can invest and manage finances and insurance with fintech applications.
One of the notorious ways in which fintech has grabbed headlines recently were the highly publicized problems with Robinhood. The commission-free stock trading app grew faster than it could handle thanks to cryptocurrency and a viral movement to boost the price of shorted stocks.
According to 2020 Google use statistics, 73 percent of smartphone users have used an app to manage their finances in the past month. Investment related app searches have grown 115 percent YoY. Fintech’s explosion in popularity poses a threat to traditional banking and investment institutions that choose not to develop their own fintech platforms.
The last ten years have set the foundation for financial technology and advancement. Use of fintech has progressed in:
Consumers have taken a liking to the ease and accessibility that these services offer. Google reports 67 percent of financial app users prefer them because they store their preference and make future activities easier. Companies in finance, banking and investing are capitalizing on the feedback from users.
A handful of industry leaders have paved the path for smaller fintech startups. Some of the most profitable fintech players in 2021 include Ant Financial, Stripe, Klarna and Kraken. With many other companies following and startups jumping in for the competition, financial technology is blasting off.
Leaders in banking and merchant accounts are going to be among the first to make serious changes to traditional brick and mortar banks. Ally, Bank of America and Capital One have already begun to implement AI virtual assistants. With text and voice-enablement, users can take care of all their banking needs – such as making payments, transferring money and making deposits – without ever needing to visit a bank branch or ATM, and in some cases without even needing to touch their device.
Fraud detection is another major part of mobile banking that companies are investing significant resources into improving. Security specialists in the sector are partnering with banks to secure applications and make them safe platforms in which users can confidently store personal information and perform transactions.
The popularity of fintech has led to the creation of “Neo Banks”. Neo Banks, like Chime and Varo, are completely mobile banks that provide financial services, banking, investment and savings accounts all on your phone. These banks do not have physical locations. In coming years, they may win a larger portion of consumer banking market share and have a significant impact on the financial industry and the way it’s viewed.
As financial technology in banking progresses, it’s possible that traditional bank branches may go the way of Blockbuster Video Stores or telephone booths. However, some people still prefer to go to the bank. There will likely be fair number of holdouts that question the security, privacy or reliability of the cloud and the internet when it comes to their finances.
A recent report from Consumer Affairs revealed that about 20 percent of Americans with bank accounts would rather go to their bank than use a digital service. However, banks are currently more interested in the 80 percent that are happy to embrace digital services.
There are ancillary benefits for the big traditional consumer and business banking institutions that embrace fintech, like saving money by not needing as many branches or employees to run them. For example, digital banking chatbots are expected to save the banking industry $7.3 billion in annual customer service costs by 2023.
Whether consumers like it or not, they may find themselves being forced to participate in fintech for banking. Your local bank branch might fall victim to the rise of fintech in the not-so-distant future, but your local Phoenix accountants at H&H Accounting Services are here to stay.
We’re always ready to help you with your finances so you can make the right decisions about your personal income taxes or business accounting.
Call (480) 561-5805 to schedule a consultation with H&H Accounting today and learn more about our tax, accounting and business consulting services.
