Technology has undoubtedly made it through to many aspects of our daily lives, and the financial sector is no exception. Fintech, or financial technology, is a term that has been around for quite some time and has undoubtedly shaped the way we process payments and handle finances.
But what is the meaning of fintech, what’s the history behind it, what are the different types of fintech companies, what are some fintech stocks, and how might fintech relate to the trading world? Here’s what you need to know about financial technology:
As the name entails, financial technology, otherwise abbreviated as fintech, is a term that describes technologies that are used for financial processes, services, or transactions. Or, in other words, fintech attempts to facilitate and make finance-related services more efficient.
History of Fintech
Perhaps surprisingly, the fintech sphere has quite a rich history that can be traced back to the 1970s and 1980s with computer systems and electronic banking in financial services which are believed to have shaped the fintech field as we know it today. Taking a quick look at fintech’s history, here are some highlights:
The 1990s and early 2000s: the emergence of electronic banking and online stock trading.
2005-2010: the development of mobile payments and P2P platforms which allowed borrowers to connect directly with lenders.
2010-2015: digital currencies had a profound impact on the fintech landscape and offered new ways to conduct transactions.
2015-2020: digital banking and robo-advisors. As artificial intelligence advanced, certain jobs that were strictly performed by humans were replaced by robo-advisors. Essentially, a robot-advisor is a digital platform that automates the process of planning and providing services without any human involvement.
2020-today: open banking, online lending, digital insurance, and more.
Types of Fintech Companies
There are many types of fintech companies out there, here are some examples:
Lending: lending fintech companies focus on providing lending services through the use of technology, digital platforms, and data analysis. Their end goal is to simplify and modernize borrowing and lending. Typically, these companies operate online platforms or mobile apps where individuals and businesses can apply for loans, access funds, and manage their loan accounts.
Payments: payments-focused fintech companies allow people to transact money without having to visit a bank.
Personal finance: Instead of having to talk to financial advisors, personal finance fintech companies offer apps to users that help with budgeting as well as other financial services like investment advice and savings options.
Consumer banking: consumer banking fintech companies offer alternatives to traditional banks for lower fees. For example. debit cards are a viable alternative for individuals who are unable to obtain credit card approval or do not wish to have one.
Insurance: insurance fintech firms use apps to reach out to potential customers for insurance.
Examples of Fintech Stocks
For traders interested in gaining exposure to fintech stocks, here are some of the most famous fintech companies they may want to keep track of:
PayPal is an American fintech company that provides digital payment services that enable individuals and businesses to transact money online securely.
Visa is an American multinational fintech company that provides individuals and businesses the ability to use debit, credit, or prepaid cards to make payments worldwide in a secure and convenient manner.
Mastercard is a New York-based fintech company providing businesses and consumers with secure and efficient payment solutions.
Goldman Sachs is an American big bank company specializing in investment banking.
While some companies may be more explicitly involved in fintech than others, even big tech companies like Google-parent Alphabet (GOOG) and Apple (APPL) are involved in fintech through their apps like Google Pay and Apple Pay.
What Is the Difference Between a Bank and a Fintech Company?
While it is true that banks can sometimes be fintech firms and vice versa, there are a few notable differences between the two types of entities.
One of the main differences is that "Fintech" refers to the application of digital technology used to enhance financial services. In contrast, banks are the financial bodies responsible for authorizing and accepting deposits and providing loans to customers.
Other differences include the role technology plays in the two. Whereas fintech is obviously reliant on technology and technological advancements, banks are not as reliant on these.
In addition, the target audience for banks and fintech firms may differ.
Fintech Companies’ Trajectories
In 2023, the banking and financial services sectors may have been under the radar in light of the collapse and bankruptcy of big banks in March like Silicon Valley Bank (SVB) and Credit Suisse (CSGN.VX). While some of these institutions may not directly be classified as fintech, they all advance financial technology in one way or another.
As such, traders who want to keep an eye on the advancement of the developing fintech field may also want to keep track of big banks to see how they can affect fintech or be affected by it. In addition, it is also worth keeping track of any upcoming central banks’ monetary decisions as it may also have a direct impact on the financial sector in general, and the fintech market in particular. (Source:FT)
All in all, it appears that technology, in general, and financial technology, in particular, will continue to make advancements in our daily lives. Traders, investors, and market watchers who want to keep track of fintech’s trajectory may want to keep an eye out for the companies above to see how they will fare as technology advances. In addition, it may be worth seeing how these fintech companies can affect Forex markets, if at all.