In the past few years, technology has been advancing swiftly, merging into our everyday lives. From computers, phones to digital wallets, technology has even taken over money management. People can pay from their bank accounts without stepping out of their homes. Similarly, investors can buy and sell shares by tapping fingers on the screen. All thanks to financial technology – FinTech.
The technology enables financial institutions to provide financial services in innovative ways to attract more customers. Banks have introduced digital banking services, allowing people to receive and send money online. In addition, innovators have developed a decentralized ledger through blockchain technology to facilitate the corporate world. Entrepreneurs can send and receive money across the border without any transactional costs. Sounds interesting, no?
Well, that’s only an overview of the FinTech industry. If you wish to learn more about it, keep reading. Here is a beginner’s guide to FinTech.
What is FinTech, and why is it important?
In simple words, FinTech is an emerging niche that combines technology and financial institutes. It aims to transform how financial companies operate and work together to upgrade financial services. From automated accounting software, online payments to digital currencies – FinTech integrates technology in every aspect of finance. Hence, one could say that FinTech is the future of accounting because, sooner or later, every company will adopt such technologies to streamline processes and go paperless.
Moreover, FinTech is striving to change the financial landscape. With the emergence of cryptocurrencies, many companies have started accepting payments in Bitcoin and its derivatives. Among them, Microsoft and Star Bucks were the first ones to take this step. Hence, we might be seeing a cashless economy shortly. Besides this, FinTech would help people manage their financial accounts by themselves, improving money management.
Once you have developed a fair idea of FinTech, have a look below. Here we are highlighting different components of FinTech.
1. Blockchain technology
When it comes to global trading, businesses have to incur a hefty amount of transaction costs to receive money from international accounts. These are service fees charged by financial institutions that scale down profits. Fortunately, FinTech is bringing a solution through its blockchain technology. It has a decentralized ledger without any interference from financial intermediaries, promoting peer-to-peer lending. Hence, entrepreneurs can directly receive money without paying any transactional charges.
In addition to reducing costs, blockchain is likely to reduce excessive bureaucracy in traditional banking. It offers top-notch security and privacy, ensuring none of the confidential information gets leaked online. Moreover, the smart contacts will be visible to every individual with the chain of payments, improving transparency across the forum.
2. Digital payment solutions
Nowadays, people hesitate to enter their credit and debit card information when shopping online. After all, data breaches and cyber-attacks are on the rise. To overcome this problem, FinTech has brought digital payment solutions. Instead of paying through credit cards, people can make payments through smart wallets. Today, almost every smartphone has a wallet, such as Apple Pay and Google Wallet. People can transfer funds in these wallets and pay through them online.
Moreover, digital currencies are also gaining a lot of popularity. Customers can use cryptocurrencies to make purchases online and incur payments. Although many businesses have started accepting crypto, you should always confirm with the company before using this payment mode.
3. Evolution of financial trading
Previously, financial trading was only for people who had financial knowledge, strategy, and skill. But FinTech is making trading straightforward and effortless. Now, consumers can use trading applications to buy and sell shares. They have to set their profile, connect it to the bank account, and start trading. Some applications even have AI-enabled Robo-advisors that assist people with trading decisions. They critically assess your risk profile and make recommendations based on it.
For instance, if your risk tolerance level is low, they will suggest selling the shares as soon as the price drops. Similarly, people who are willing to go all-in will receive different suggestions. Therefore, if you don’t even understand the trading markets, you can still earn lucrative returns without losing any money. In short, this would be an incredible way to make some side income out of your savings.
4. Smart lending solutions
Surprisingly, lending technology has also developed within the FinTech framework. It is offering businesses an opportunity to borrow money like never before. You only have to fill out an application online and submit the paperwork by uploading PDF documents. From loan origination to servicing, everything would happen by tapping fingers on the screen.
Moreover, the lending solutions support peer-to-peer borrowing to ensure everyone has access to funds. Usually, small businesses and individuals with low credit scores are unable to score loans from banks. These lending solutions provide an opportunity for everyone to raise additional capital and make their business thrive. However, the model is transparent and ensures borrowers repay timely, reducing the default risk.
The coming years are likely to be super bright for the FinTech industry. New tech evolutions will attract more businesses while offering convenience and flexibility to the consumers. In addition, open banking services and blockchain technology will improve access to financial data. Hence, you can monitor developments in the FinTech industry and upscale your business model accordingly. Above all, FinTech will foster economic development since people will have better control over their finances.