Financial technology describes the technology and innovation that aims to compete with and replace traditional financial methods in the delivery of financial services and products. It is an emerging industry that uses technology to improve activities in finance. The use of smartphones for mobile banking, investing services, and cryptocurrency are examples of technologies aiming to make financial services more accessible. Financial technology companies consist of both startups and established financial institutions and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies. Traditional financial services institutions have offered services and products under a single umbrella. Financial technology, at its most basic, unpacks these offerings and uses technology to reduce associated costs per transaction.
According to EY's 2017 Fintech Adoption Index, one-third of consumers utilize at least two or more services or products described as financial technology and those consumers are also increasingly aware of financial technology as a part of their daily lives.
One of the more common forms of Financial Technology allows users to pay with their smartphone either through a point of sale terminal, online or between smartphones. This includes services such as Apple's Apple Pay, Google's Google Pay, Alibaba's Alipay, PayPal or Venmo.
Lending and Credit
The financial technology developments in lending and credit include the use of new data and understanding of the data to lend to borrowers whose traditional credit scoring would make them prohibitive to lend to, new strategies to provide loan and credit products to consumers and new ways of credit reporting.
The use of new data and data models has extended lending in traditionally under-banked regions where receiving a loan or credit can be increasingly difficult. A company like Tala offers microloans in regions where credit scores are either low or non-existent through data mining on a users smartphone.
This also expands to bypassing traditional credit methods for consumers where they can receive short-term loans without a credit card or a credit score which would typically enable them to receive a short-term loan. Affirm and Klarna are both examples of companies who allow consumers flexible payment and loan options at the point of checkout for online purchases.
And in lending and credit, companies are developing peer-to-peer lending platforms and crowdfunding platforms, such as Lending Club, where users can make or receive loans without the involvement of traditional financial institutions, and Prosper Marketplace, OnDeck, Kickstarter, Patreon or GoFundMe.
Investment and Wealth Management
Financial technology in the area of investment and wealth management includes the development of robo-advising, where companies use data, machine learning and artificial intelligence to provide asset recommendations and portfolio management with increased efficiency and lowered costs. Betterment and Ellevest are good examples of companies offering robo-advisors for wealth management. Meanwhile, the development of stock-trading apps has been one of the more popular innovations in financial technology. These apps allow investors to buy and sell stock on their mobile phone. Apps such as Robinhood or Acorns allow users to invest with low minimums.
Insurance and Regulatory Technology
Financial technology has included the insurance and regulatory industries as well. Although often considered their own industry, insurtech and regtech respectively, they increasingly fall under financial technologies ever-expanding umbrella of innovations.
Innovations in insurance allow consumers faster and more expansive access to insurance options and pricing, as well as some companies developing technology to simplify and improve the efficiency of insurance providing.