What Is Financial Technology – Fintech?

Financial technology (Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services. At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones. Fintech, the word, is a combination of "financial technology".

Technology has transformed the way we do pretty much everything from shopping to socializing and it’s also turning the financial services industry on its head. Over the last few years, a crop of fintech startups has emerged, using technology to make it easier for people to invest, make payments and even get a loan.

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These apps and websites are reaching a generation of people at an asset level that the average financial advisor can’t.

What Are the Advantages of Fintech?

Fintech has also leveled the financial playing field for everyday people, giving them access to services previously reserved for the wealthy or individuals of a certain economic stature. Take investing for one example. Technology and data make it much easier and cheaper to bring investment advice to the masses, which means something that was geared toward a certain asset level is now open to everyone.

Robo Advisors

Robo advisors are one of the largest areas of fintech. These online investment services put users through a series of questions and then rely on algorithms to come up with an investment plan for them. Many don’t have requirements in terms of investable assets or the amount you need to open an account. Often, they choose low-cost investments such as index funds or exchange traded funds to keep the fees investors pay at bay. They also handle rebalancing and asset allocation automatically, giving customers one less thing to worry about.

    Online Lending & Student Loans

    Banks have long been the only option for borrowers, but for ones with less than stellar credit or those who want to streamline the process, fintech presented another option. After the financial crisis, banks were reticent to lend, shutting a lot of consumers out of the lending market. Fintechs, armed with a different way of assessing risk, stepped in to meet the pent up to demand. “The rise of lending startups was in part due to the banks stepping away and also realizing how big of an opportunity it is,” says Matthew Wong, senior research analyst at CB Insights. “Millennials are open to new brands when it comes to financial services.” Online lending covers all aspects of borrowing from personal loans to refinancing student debt. Some of the big players in the lending space include SoFi, Earnest, Prosper and Ligthstream.


      Student loan refinancing

      One area of online lending that has been exploding in recent years is student loan refinancing and, again, it’s because of an absence of lenders. Banks balked at lending to college-bound students because the government controls the lion’s share of the market, but Federal loans aren’t the be all end all. Lots of people need private loans to make up the difference and banks weren’t around to lend, but fintechs were. Just ask SoFi, which has lent $10 billion since 2011, or CommonBond, which claims borrowers can save as much as $14,000 by refinancing. There are now a host of fintechs that do everything from refinance existing student loans to originate new ones. This is good news for consumers saddled with outsized student loan debt. In a lot of cases, the fees and interest rates are lower, or the borrower would otherwise be shut out of the refinance market if a bank was the only option.

        Student loan repayment assistance

        Student loan fintechs aren’t only in the business to refinance existing loans, they are also helping people pay them off, providing a platform that companies can offer their employees. Tuition.IO is one example. Its platform lets companies pay a portion of their employees’ student loan debt similar to how companies contribute to 401(K)s. Student Loan Genius and Gradifi are two other startups helping companies reduce student loan debt.


          Mobile Payments

          Everyone likes conveniences so it’s not surprising mobile payments have resonated with millennials. Who doesn’t want to whip out a mobile device to pay for coffee or press a button to send money to friends? It’s the reason eMarketer predicts there will be $27 billion in mobile payment transactions this year alone.It’s also the reason there are so many choices when it comes to mobile payment providers. There are digital wallets like Apple Pay, Google Wallet and MobiKwik, payment processors including Square and PayPal, and money transfer services like WorldRemit and Transferwise. All of them are focused on one area: digitally paying for things.

            Fintechs for Personal Finance & Savings

            Long gone are the days where the only way to save was via a bank or under your mattress. Now, there are a slew of fintech startups in the micro saving department helping people save their change for rainy days. Many of them are also rewarding customers for doing it. Wong of CB Insights pointed to Digit and Acorns as two examples of popular players in the fintech saving space. With Digit, users can automate the process of saving extra cash, while Acorns automatically invests users’ spare change.


              Online Banking & Budgeting Fintech

              Banking is one of those things millennials expect to do online and while all the banks generally offer online banking now and a mobile app, the fintechs have found a way to excel in personal finance and budgeting. Catering to millennials, online banks such as Chime or Simple, reward users for using automatic savings and also provide a low-cost alternative to a traditional bank. Using online tools, they help users budget and manage their money smartly to meet savings goals, all with minimal effort and right from their smartphone.

                Insurance Fintechs

                Insurance is that necessary evil that, for some, the process to get coverage can be too arduous. A handful of startups are aiming to change that, upping the customer service and reducing the costs for peace of mind. “We are seeing a lot more startups but it’s very early,” says Wong. Some are selling millennials insurance like Policy Genius while others are creating new insurance models like Metromile, which sells pay per mile car insurance and Trove, which provides on-demand insurance for customers’ personal items and will be available in the U.S. in 2017.

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