Used by many of us, even if unknowingly: here’s what fintech is and everything you need to know about it.
The term "Fintech" (techno-finance) generally indicates the financial innovation made possible by technological development, which can translate into new business models , processes or products, and also new market players. In essence, it is a multibillion-dollar industry that is changing the way we shop, borrow and save.
According to the EY Fintech Adoption Index one-third of consumers worldwide use two or more fintech services, yet users are often unaware that the financial services applications they use on a daily basis are considered fintech. Let’s clarify.
What is fintech
The term fintech generally refers to any technological innovation that is introduced in financial services. Industry operators develop new technologies to revolutionize the world of financial markets, traditional banks and even insurance companies (Insurtech).
The subjects most involved in this process are obviously the start-ups, but also the most famous banking institutions (think of HSBC, Credit Suisse, Unicredit, etc...) are architects of this transformation and are investing in internal development or in the acquisition of fintech projects. These use technology available to everyone, such as apps, but also more complex software that includes the use of artificial intelligence or big data.
Applications of mobile payment (such as PayPal, Apple Pay or Satispay), cryptocurrencies (such as Bitcoin, Ripple and Ethereum...), blockchain , crowdfunding, open APIs, chatbots, robo-advisors... These terms, which have now become part of the common vocabulary, end up in the fintech cauldron.
The innovation "that destroys"
Disruptive innovation refers to that technology or innovation that leads to the creation of products and services that generate a sudden disruption to compete against a dominant technology, in search of a progressive consolidation in a given market.
We talk about such innovation whenever new technologies alter the way markets operate. While not exclusively a term related to fintech, it is often used to describe financial services where technological developments are forcing financial institutions to rethink their approach to the industry.
Regtech
The control and regulation of financial markets, also called regtech, refers to the technology that helps companies operate in the financial services industry without losing sight of the laws that regulate these markets.
Everything changed with the arrival of MiFID II (Directive No. 65 of 15 May 2014 of the European Parliament and Council), which gave rise to numerous start-ups specialized in regtech to help financial companies align with the new legislation.
Among regtech’s top priorities are the automation and digitization of anti-money laundering legislation and the Know Your Customer (KYC) processes, which identify and verify the identity of customers of financial companies to prevent scams and fraud partnerships .
Insurtech
Insurtech is a subset of fintech that refers to the use of technology to simplify and improve the efficiency of the insurance industry.
A report by Capgemini and the European Financial Management & Marketing Association (EFMA) underlines how traditional insurance companies are facing growing competitive pressure due to the birth of a series of start-ups specializing in insurtech.
ICOs
An initial money offering (ICO) is a funding measure for start-ups using the blockchain and involves the sale of units of cryptocurrency issued by the start-up in exchange for real money.
ICOs are similar to initial public offerings (IPOs), where the shares of a company are sold to investors for the first time. But ICOs refer to backers of a project rather than investors, making the investment more like a crowdfunding experiment.
Open banking
It is now an idea that has made its way into financial services and fintech and involves banks allowing third-party companies to create applications and services using the bank’s internal data. Open banking involves the use of application programming interfaces (APIs) - codes that allow different programs to communicate with each other - to create a connected network of financial institutions and third-party providers.
Proponents of open banking believe that an open API ecosystem will allow fintech start-ups to develop new applications such as mobile apps so as to allow customers greater control over their banking data and financial decisions.
Financial inclusion
Financial inclusion refers to solutions designed by fintechs to provide more accessible alternatives to the most disadvantaged and low-income people who have limited access to key financial services. This is one of the most important areas for fintech companies operating in developing markets.
Smart contracts
Smart contracts are computer programs that automatically execute contracts between buyers and sellers. You save enormous amounts of time and costs for transactions that usually require the input of a human being. For example, in Ethereum smart contracts are treated as decentralized scripts stored in the Blockchain network so that they can also be used in subsequent executions.
Robo-advisors
robo-advisors are platforms that automate investment advice using financial algorithms. They limit the need for human managers, dramatically reducing the cost of managing a portfolio.
In recent years, fintech has grown rapidly, hand in hand with ever-faster technological innovations. We are facing a real revolution and many may have already regretted not getting on the fintech train sooner which continues to travel at high speed. According to what emerged from the research of Cross Border Growth Capital on the digital financial services market in 2021 a total turnover of 143 billion euros and 121.5 billion of investments collected. Specifically, the Personal Finance and Digital Payments segments have driven the growth of Fintech, for which growth of 14% is expected between 2020 and 2025.
Original article published on Money.it Italy 2022-10-30 14:37:02.
Original title: Cos’è il FinTech? Tutto quello che c’è da sapere sulla tecnofinanza
