In order to make the analysis of financial-technological terms as clear, detailed and concrete as possible, Fintechlopedia provides definitions and explanations so that the increasingly frequent terminology is understandable to everyone.

An introduction to this area begins with an explanation of the term FinTech. From the name itself, it is easy to understand that it combines two terms: finance and technology, as it refers to innovative projects, such as plentiful startup solutions that use technology to review financial and banking services.

FinTech is a term that often refers to projects that are tightly connected with information and communication technologies as they try to capture the market share of large companies that are often either not very innovative or lag behind in the adoption of new technologies.

Since when does FinTech exist?

The integration of finance and technology has been a growing trend for decades. However, it was not until the 1970s and 1980s that the two industries began to rapidly converge. With the introduction of computers and electronic communication networks, finance professionals could access vast amounts of data, perform complex calculations, and execute trades with greater speed and efficiency than ever before.

As technology continued to advance, the internet became widely accessible, and online payments and banking services emerged. This development marked a turning point in the evolution of the finance industry. The potential of digital technology to transform financial services became increasingly evident, leading to the birth of FinTech as we know it today.

The term FinTech refers to companies that leverage technology to offer financial services. These services include a wide range of activities, from payments and lending to investing and insurance. FinTech companies have redefined traditional financial services, making them more accessible, affordable, and convenient for consumers.

The 2008 global economic crisis marked a significant turning point in the evolution of FinTech. The crisis led to a loss of trust in traditional financial institutions and created an opportunity for innovators to disrupt the industry. Many former bankers and traders left their jobs and founded FinTech startups, seeking to build more transparent, efficient, and customer-friendly financial services.

Today, the FinTech industry is a major force in the global economy, with hundreds of companies operating in multiple sectors. These companies are driving innovation and transforming financial services, with solutions that range from mobile banking apps and digital wallets to robo-advisors and blockchain-powered platforms.

Where do we see FinTech?

FinTech is transforming the financial services industry in every area, from savings management to lending, both for individuals and smaller businesses, to providing online payment options to individuals and legal entities. As we have seen with the music, media, hotel business, and transportation industries, digital services have improved these areas dramatically. The revolution in the banking and finance sector is no different.

FinTech has led to a massive transformation in every economic sector, from traditional to modern. Even the oldest and most traditional industries are now aware of the potential that FinTech can bring. We have seen entire industries move into the digital world, such as Amazon for distribution, Uber for public transportation, and Airbnb for accommodation rentals.

The banking sector is now being shaken by these innovations, and it is not hard to see why. While it is unlikely that FinTech will “shut down” banks in the same way that Airbnb made the work of some travel agencies obsolete, it will undoubtedly make them more innovative and drive down the prices of their services.

One area where FinTech is having a significant impact is on lending. Traditional banks have been slow to embrace technological advancements in the lending space, often requiring extensive documentation and taking weeks or even months to approve loans. However, with the emergence of FinTech lenders, borrowers can now access loans quickly and with minimal documentation. These lenders use alternative data sources and algorithms to assess risk, allowing them to make quick lending decisions.

In addition, FinTech companies are also offering innovative solutions for personal finance management. With the rise of digital banking, individuals can now manage their finances from their smartphones. Mobile banking apps allow customers to track their spending, transfer funds, and even invest in stocks and shares, all from the convenience of their smartphones.

The impact of FinTech is immense, and the potential for growth and innovation is limitless. While traditional banks may not be replaced by FinTech companies, they will need to adapt and embrace new technologies to stay relevant and competitive in this fast-paced and rapidly changing industry. The future of finance is undoubtedly digital, and the FinTech revolution is leading the way.

What is the relationship between FinTech and banking?

The relationship between FinTech and banking is often viewed as competitive, but the reality is that the two are complementary to each other. The traditional banking sector still dominates the financial services market, but FinTech is most often based on providing services that complement traditional offerings. This competition is driving banks to improve their services to stay competitive.

In recent years, the term “unbanked” and “underbanked” has become increasingly common when discussing banks and FinTech. The term unbanked refers to individuals who have no connection to banks at all, while the underbanked are individuals who do not have access to certain banking services. This is a significant issue, as it excludes a large portion of the population from accessing financial services and products.

This is where FinTech solutions can be of great importance, as they provide key solutions for unbanked and underbanked individuals. These solutions offer a range of services that can help individuals who do not have bank accounts or do not have access to all banking services, such as mobile payments, digital wallets, and peer-to-peer lending.

The rise of FinTech has also spurred traditional banks to become more innovative and adapt to the changing market. Banks are investing heavily in digital technologies to improve their services and provide customers with a more seamless experience. They are also collaborating with FinTech companies to provide customers with the best possible services.

Furthermore, traditional banks are also adopting FinTech solutions to expand their services and offer a wider range of products. For example, banks are now offering mobile banking apps, allowing customers to manage their accounts, transfer funds, and pay bills on the go. This is just one example of how banks are embracing digital technologies to stay relevant and competitive.

While FinTech may seem to be in competition with banks, the two are actually complementary to each other. FinTech is driving innovation in the financial services industry, pushing banks to improve their services and become more customer-centric. By working together, banks and FinTech companies can offer customers the best possible solutions and services, helping to bridge the gap for unbanked and underbanked individuals and ensuring financial inclusion for all.

How is FinTech regulated?

The rise of FinTech has led to new challenges for regulators around the world. While FinTech companies aim to provide innovative financial services to consumers and businesses, regulators must ensure that these services are safe and comply with relevant laws and regulations. This requires a balancing act between encouraging innovation and protecting consumers.

Regulators in different countries face different challenges when it comes to regulating FinTech. Developing economies, in particular, may have a financial sector that faces numerous obstacles, and governments may struggle to harmonize the legal framework to adapt to the needs of modern society.

Central banks are typically the key financial regulators in each country. However, as institutions that traditionally prioritize stability over innovation and risk, regulating FinTech products and services may not be simple or feasible for them in the way they regulate traditional banking products and services.

Despite the challenges, governments must develop strategies to regulate FinTech to ensure consumer protection and economic stability. This requires an understanding of the technologies used to provide financial services, as well as the ability to adapt to changing circumstances and embrace innovation.

It is worth noting that, while some regulators may view FinTech as a threat, it can also be a tool to promote economic stability. However, it is crucial to strike a balance between promoting innovation and ensuring the safety and protection of consumers. Therefore, governments must take a measured and informed approach to regulating FinTech to fully realize its potential.

What administrative restrictions exist?

FinTech is a rapidly growing industry that is changing the financial landscape across the globe. However, as with any disruptive technology, there are administrative restrictions that hinder the progress of FinTech. The biggest challenge for governments is the lack of resources and expertise needed to regulate the FinTech industry effectively.

Most governments prefer to promote inclusion and financial stability rather than reduce their political influence as a result of technological innovation in the financial sector. This can lead to a slow response to FinTech advancements and a reluctance to change existing regulatory frameworks.

Furthermore, government officials, ministries of finance, and central banks often lack the necessary expertise in financial technology to fully understand the potential benefits and risks of emerging innovations. This can result in a lack of support for FinTech initiatives, which can stifle growth and innovation.

In addition to the lack of expertise, traditional financial service providers can also put pressure on governments to maintain the status quo. These providers are often resistant to change because they stand to lose profits as a result of increased competition from FinTech companies.

Moreover, the inability of governments to fully follow what is emerging in the market can lead to some FinTech innovations being unrecognized and unaccepted by the financial system. This can create a sense of uncertainty and risk for both providers and consumers of FinTech products and services.

The administrative restrictions that exist in the FinTech industry are a major challenge for governments across the globe. However, it is crucial that regulatory frameworks are updated to promote innovation and protect consumers. As the FinTech industry continues to grow, it is important that governments prioritize the resources and expertise needed to effectively regulate this rapidly evolving sector.

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This content was brought to you by VISA, the global leader in digital payments, whose mission is to connect the world with an innovative and secure payment network to enable individuals, businesses, and economies to grow.

Visa is the general partner of Fintechlopedia project, an electronic glossary containing all relevant elements of digital transactions and related phenomena, situations, processes, and innovations.