Fintech (Financial Technology)

Introduction – What is Fintech?

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Financial technology or Fintech for short aims to compete with traditional financial methods in the delivery of financial services.

It is a developing industry that uses technology to improve financial activities. Financial technology firms include both start-ups and established financial institutions. Fintech technologies include the use of smartphones for mobile banking, small business loan applications,  investing, various borrowing services, and cryptocurrency. The term “Fintech” refers to a new financial industry that uses technology and software systems to improve financial activities/experiences.

Types of Fintech systems:

StockMarket

Fintech is a very large area that encompasses a range of different systems including the following:

  • Investments: This may include the purchasing of stocks, futures or commodities such as Gold or Silver.
  • Risk management:  Every investment involves some level of risk, so risk management systems are used to collect data and assist in determining whether a transaction/investment is promising or should be avoided.
  • Trading: Trading involves the buying and selling of financial assets such as shares, bonds and other types of investments.
  • Banking services: Fintech solutions can help facilitate banking services such as lending money, foreign exchange and more.
  • Neobanks: These are alternatives to traditional banks and are “digital first”.

Notable platforms in the space

PayPal

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With it’s roots back in 1998 PayPal was one of the first major successful consumer payment platforms that gained prominance and is still considered a major player in the space.

PayPal is used almost everywhere from eCommerce websites to buying and selling platforms and provides a safe way to transact money online.

Stripe

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Stripe is another major payment gateway based out of San Francisco in the USA and focuses on developer integration and as such is ubiquitous and integrated into thousands of buyer/seller marketplaces and subscription payment platforms to automatically handle payments across dozens of currencies and support different types of credit cards.

Payoneer

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Payoneer is another popular platform focused on international money transfers and is common in countries where PayPal or others don’t currently operate such as Pakistan at the time of writing.

Payoneer allows individuals and businesses to send and receive money between them funded by bank account transfer or credit card and quickly have the funds received by the other person or business.

Binance

Binance

When it comes to Crypto trading applications Binance is a significant player in the space which enables people and businesses to buy/sell Cryptocurrencies as well as NFT assets and deposit money in different currencies like USD and Euro.

Related guide: List of platforms to help you accept Cryptocurrency payments on your website

Wise (formally TransferWise)

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Wise (formally TransferWise) is another popular payment application with its roots originally in Estonia where it was founded.

Similarly to Payoneer it is designed for quick peer-to-peer payments between individuals and businesses but focuses on high speed and has lower fees compared to some other platforms.

Cashapp

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Cash App (formerly Square Cash) is a mobile payment service available in the United States and the United Kingdom that allows users to transfer money to one another via a mobile phone app (for a 1.5% fee for immediate transfer).
In September 2021, the service reported 70 million annual transacting users and a gross profit of US$1.8 billion.

Square

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Square is another popular payment gateway mostly used in POS systems but also operates as a standalone payment application enabling businesses to accept and pay with different types of credit cards

Venmo

VenmoLogo

Venmo is an American mobile payment service that was founded in 2009 and is now owned by PayPal. Venmo was designed for friends and family who want to split bills, such as for movies, dinner, rent, or event tickets, among other things. Account holders can transfer funds to others using a mobile phone app; both the sender and the receiver must be US citizens.

Users of Venmo, a small social network, can watch how other people who are sending money to one another interact with amusing emoticons. The company handled $230 billion in transactions and earned $850 million in revenue in 2021.

Concerns over the technology

In July 2018, the Trump Administration issued a policy statement allowing FinTech companies to apply to the federal Office of the Comptroller of the Currency for special-purpose national bank charters.

Another issue that regulators are concerned about is data security, which is concerned because of the threat of hacking as well as the need to protect sensitive consumer and corporate financial data.

Fintech companies in the European Union are required to follow data protection laws such as GDPR.
Any data breach, no matter how minor, can result in direct liability to a company depending on the laws of the country.

The online financial sector is also becoming a more popular target for distributed denial of service (DDoS) extortion attacks and other types of intrusions like Phishing.

Technologies leveraged

StocksSoftware

AI (Artificial Intelligence) & Machine Learning

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The use of Artificial Intelligence has enabled Fintech solutions to learn from data over time and use it to make predictions for the future with similar behavior/traits to a human mind and its reasoning behind decisions. AI along with machine learning can help software systems become more accurate over time and learn from mistakes as more data is processed.

Cryptocurrency

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Cryptocurrency is a digital asset that functions like a traditional currency however is decentralized and cannot be controlled by a central body like a traditional bank. Fintech solutions working with Cryptocurrencies like BitCoin, Ethereum, and others contain features such as the ability to send and receive funds or make investments and track the price of a currency.

Since the early days of Crypto and rise of Bitcoin the technology has become more mainstream and from 2017 onward there were efforts to simplify the purchasing and management of these assets by various companies offering Crypto exchanges.

We have covered many of these vendors in articles on our blog such as the following:

List of quality Crypto exchanges for Australians

List of quality Crypto exchanges for New Zealanders

Recommended Crypto exchanges that work in Dubai and the United Arab Emirates

Crypto exchanges, apps & platforms that work in Norway (including regulated platforms)

Cryptocurrency apps & platforms worth checking out if your in Hong Kong

BlockChain

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A Blockchain is a growing list of records, called blocks, that are linked together using cryptography. Each block contains a cryptographic hash of the previous block and transaction data. Once recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks.

Blockchain technology is used alongside Cryptocurrency and Fintech solutions often leverage it to keep track of transactions and verify their integrity. Banks are interested in this technology because it has the potential to improve the speed of back-office settlement systems in various financial services.

Automation

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By leveraging automation in general Fintech software can speed up traditional operations in the finance sector such as reporting, responding to questions, handling support requests, and detecting fraud more efficiently.

Web-based applications & websites

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Websites and web applications can be used to market a Fintech or financial services company to potential clients or even offer functionality such as online trading, interactive content, and options to gather live data on stocks or other investments.

Related entries from our tech glossary:

Shitcoin

Smart wallets

Crypto mining

Smart contracts

ICO (Initial coin offering)

Staking pools – What are they?

What are DApps?

De-Fi (Decentralized Finance)

The Crypto ecosystem/sector

Whitepapers for Crypto projects

POS System (Point Of Sale)

Central Bank Digital Currencies

ERP Software (Enterprise Resource Planning)

Cloud Computing

LMS (Learning Management System)

How do forks work in Crypto?

Dropshipping business model

Stablecoins

Web 3.0

Cross-chain communication

Explanation of distributed ledgers

What are Privacy Coins and how do they work?

What is Know Your Customer (KYC)?

Blockchain Explorer Definition

What is market analysis in the context of Cryptocurrencies?

Blockchain Voting Systems

What are Initial Exchange Offerings (IEOs)

Metamask

Blockchain Governance

Conclusion

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Source(s)/Bibliography:

Commemorates 150-year history – Marcus by Goldman Sachs leverages technology and legacy of financial expertise in dynamic consumer finance platforms. (n.d.). Retrieved May 04, 2021, from https://www.goldmansachs.com/our-firm/history/moments/2016-marcus.html

Financial technology. (2021, May 04). Retrieved May 04, 2021, from https://en.wikipedia.org/wiki/Financial_technology

April 23, 2. (n.d.). Data security considerations for fintech companies. Retrieved May 04, 2021, from https://web.archive.org/web/20170905104224/https://www.bna.com/data-security-considerations-for-fintech-companies/

Katrina.Tuliao, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons

Arnold, M. (2016, September 23). IBM in blockchain project with China UnionPay. Retrieved May 04, 2021, from https://www.ft.com/content/719f4e7e-80e1-11e6-bc52-0c7211ef3198

“Cash App” Wikipedia, 13 Jan. 2018, en.wikipedia.org/wiki/Cash_App. Accessed 28 Feb. 2023.

“Venmo” Wikipedia, 18 Apr. 2015, en.wikipedia.org/wiki/Venmo. Accessed 28 Feb. 2023.

The following icons are licensed under Creative Commons (Attribution 3.0 Unported)

www.iconfinder.com/icons/2890583/download/png/512. Accessed 28 Feb. 2023.

www.iconfinder.com/icons/2909601/download/png/512. Accessed 28 Feb. 2023.

www.iconfinder.com/icons/3287271/download/png/512. Accessed 28 Feb. 2023.

www.iconfinder.com/icons/7229171/download/png/512. Accessed 28 Feb. 2023.

www.iconfinder.com/icons/5355692/download/png/512. Accessed 28 Feb. 2023.