When you buy your morning coffee and you swipe your card for payment, fintech is involved. When you wire an amount of money to a friend through PayPal, fintech is at work. Even when you do your daily budgeting through an app, fintech still comes to play. We do a lot of things that cross over between finance and technology without realizing it. However, these are just some of the basic examples of fintech. In reality, it is a broad concept and to fully understand it is a challenge. In this article, we explain to you in the simplest way possible what is fintech. We’ll be taking a look at the popular fintech trends, the technologies involved, and how it is disrupting the financial ecosystem. But how do we draw a line between financial technology and the traditional financial methods? Experts agree that Fintech is unique to conventional methods in a way that it provides end-to-end complimentary services over the internet. Its ultimate goal is to bring financial services closer to the people. Things like mobile banking, mobile payments, online stock trading, and even cryptocurrency are the offsprings of financial technology. Almost every aspect of the industry has benefited from Fintech innovations, but there are certain areas that changed beyond recognition. The application of technology has seen a lot of potential in trading, digital banking, and risk assessment among others. Most companies are pouring their resources into these financial domains. Mobile Banking Credit Score ETF Traditionally, insurance involves a lot of paperwork which takes forever to be processed. Piled up papers, overworked insurance agents, and outraged customers ー that is the picture of staid insurance. But, the development of advanced technologies such as AI and machine learning have brought about significant growth to the insurance domain. The digitization of the operating procedure has optimized the overall performance of insurance. Machine learning applications have enabled insurers to process more data and come up with customized insurance policies. As a result, insurance services such as claims management and application have sped up, leaving customers at the receiving end. Mobile and internet banking is the biggest legacy of fintech in the sector. Most of the financial institutions nowadays are taking a “mobile-first” approach to reach out to clients. Using mobile apps, it allows banking services to be more consumer-centric while maintaining financial transparency and private data. The 24/7 availability of mobile banking eliminates the need for over-the-counter transactions and allows remote requests via the internet. These things don’t just benefit the customers alone. From the bank’s perspective, mobile banking is a great way to cut operational expenses from handling transactions. With P2P payments, electronic bill payments, online fund transfers among others, people no longer have to physically go to the bank for non-cash transactions. Before a loan gets approved, it has to go under credit risk assessment. This process can sometimes be dreadful not just for the applicants, but for the creditors as well. But thanks to various software analytics, this has been made easier. Nowadays, banks use credit scores to determine whether customers have the capacity to pay their loan applications. FICO score is the most common measurement which creditors use in determining the risks in granting a loan. The credit score is derived straight from the borrowers’ past transactions such as payments history, types of past credits, and the amount they currently owned. Alternatively, some creditors use additional intelligence from social media behavioral analysis to assess the success of a certain loan. Naturally, a poor credit score could lead to the denial of loans but there could be another alternative. P2P or Peer to Peer lending is also making a buzz recently. It is a fast and easy way to lend money from small-time creditors over the internet. Unlike established institutions, it does require a common bond between the borrower and creditors. However, any easy money can be dangerous. P2P lending is not 100% secure since it’s no direct government supervision. Plus, it’s notorious for high-interest rates as well. It may look exciting, but exchange trade floors are taxing that’s why other stock exchanges are migrating to electronic trading. In comparison to human-based systems, electronic trading uses a network of computers to match buyers with sellers. Traders no longer have to be physically on the floor to be able to land a deal, making stock trading more efficient and faster. Nasdaq is among the stock exchanges to go fully electronic, from quoting to matching. Using computers, Nasdaq provides real-time buy and sell price quotes. This information then travels to the matching engine for the actual trading. Once the stock is sold, it will also be reflected in Nasdaq’s main computer system. Blockchain Robo Advisor Big Data Analytics AI is also massively used for advisory and digital finance coaching purposes. Nowadays, there is a steady rise in the use of transactional bots that analyze spending behavior and help customers manage their personal finance. Some insurance and banking institutions also provide proprietary chatbot apps to help their clients get on top of their finances. Due to its wide application in many industries, AI companies are growing exponentially and are gaining massive investments. Here are the best Artificial Intelligence stocks that are taking the bag.
Blockchain
Robotic Process Automation (RPA) is a form of AI and machine learning which automates repetitive tasks across different verticals including finance. It uses a Graphics User Interface (GUI) to observe how a user performs tasks and eventually automate those tasks. RPA is commonly used to perform simple tasks like sending system-generated emails. However, it can also perform complex tasks like financial information gathering and database organizing which are taxing when done manually. On top of these, tokenization is the greatest edge of blockchain over traditional banking. Using tokens, businesses have the power to use universal currencies instead of relying solely on the official currency of each country. For this reason, many are encouraged to invest in Blockchain stocks.
Robotic Process Automation
Big Data and Analytics
Big Data and Analytics is playing an immense role in revolutionizing the financial service industry. The use of technology has escalated in the advent of wireless connectivity, internet, and mobile technologies. These emerging technologies have fundamentally increased the data that the industry has to process which are too overwhelming for standard data tools to handle. Hence, the need for Big Data and Analytics tools kicks in. For the finance sector, big data analytics is a critical infrastructure to process the ever-increasing information gathered from our electronic devices. Using powerful algorithms, analytical tools can read patterns from the “big data” and extract valuable information about users with greater statistical power. With big data, banking institutions, for instance, can store data about their customer’s habits and preferences through mobile banking apps. They can use this information to anticipate spending behaviors of customers and create better strategies and protective policies for them. As already mentioned, even swiping your card on the grocery store when you do a supply run is a form of fintech. Even people who are into gaming might have already participated in fintech once or twice when they use their PSN Wallet to buy games or their Nintendo Points to redeem rewards. Unless you are living in a barn, chances are you have already encountered fintech once or twice without you knowing. But the fintech tools we use on a daily basis are nothing compared to what financial institutions are using. It’s logical that they use more powerful infrastructures to meet the demands and volume of the data they have to handle. Banks use APIs and open banking to facilitate interconnection with other financial service providers. Traders use electronic trading platforms to monitor real-time online trades. On the other hand, advisory firms are using Robo-advisors in providing financial management strategies with minimal human intervention. On the other hand, pull messages are the ones coming from the customers to the bank. These are usually in the form of codes to initiate requests for account balances, transfers, and other services. The growth in the use of smartphones gave birth to a more secure and efficient mobile banking. Instead of relying on SMS, banks nowadays provide their customers with mobile banking apps. Mobile banking is considered synonymous with internet banking. Although they may be similar in some circles, they greatly differ in security protocol. Internet banking relies heavily on the web. For you to access your bank account with internet banking, you have to use a website and log in with a password. This process can easily tamper and hackers might be able to steal your credentials in an instant using keyboard capturing. While mobile banking can only be accessed on the device which has the mobile app or the SIM card registered on the bank. Other banks also implement one-time-passwords sent via SMS that have to be used with the main password when logging with your mobile banking account. Some even use biometrics like fingerprints as an access point.
What is Mobile Payment
Mobile payment is often mixed up with mobile banking when for a fact, they are not analogous. Mobile banking is an extension of traditional banking services, whereas mobile payment is a third-party service that anyone can avail of. It doesn’t necessarily require you a bank account to use mobile payment. Mobile payment apps revolutionized how people spend, send, and store money. Not long ago, people needed cash or credit cards, but nowadays mobile phones and other smart devices can be used to keep digital money and spend it digitally as well. There is a rapid uptick in the use of mobile payments with the rest of the world shifting to a more efficient payment option. In a report made by Statista, mobile contactless payment users is expected to grow to 760 million by the end of 2020. Here are the mobile payment services that are to take the most number of shares. Firstly, you have to have a Chinese ID to register, and second, you have to have a Chinese bank account to add funds. Thankfully though, Alipay now allows foreigners to register using an overseas phone number and bank account. This will last for three months and is available for those visiting China. Whether you want to keep your spending under control or want to learn how you can effectively invest, there is a right and best budgeting app for you. YNAB NerdWallet The transactions are then sifted into categories so users would know where they are spending the most. Besides, it sends notifications on unpaid bills, low funds, or when a transaction was made with an unusually large amount. For security, Mint requires two-step verification using a fingerprint and a four-digit passcode to log in. Once your spending in one category exceeds, you will then be forced to cover that overspending from somewhere else in the budget. From the dashboard, the app readily displays your spending so you are always on track. However, its budget tracking feature works oddly and tends to shift away from how its competitors do. Instead of calculating income based on the information from the users’ bank accounts, NerdWallet allows users to set an estimated income. All your spending will then be subtracted from the given income to see what you have left to spend in a month. An example, the collaboration between Accenture and Zurich Benelux, a century-old insurer, has brought a first-of-its-kind project in insurance. Accenture is helping the Swiss company in providing blockchain-based insurance solutions within surety bonds. The collaboration transforms the surety-management back-end of Zurich Benelux into a transparent digital hub and ensures the fulfillment of business transaction terms within a project. Besides, automation is also being extensively used in insurance when it comes to handling claims and property assessment. Even the big data has also found its value to the industry by helping insurers extract valuable information from unmanageable amounts of customer data. Here are some emerging insurtech startups that prove the value of technologies to the insurance industry. The advent of Robo-advisory has added inclusivity to wealth management. Using technology, Robo-advisors lowers the cost of financial advice compared to traditional human intervention and brings the service to a greater pool of people. It also takes significantly less capital to get an account started, which makes the service accessible for both amateur and long-time investors. There are hundreds of Robo-advisory firms in the US and counting. Most of them offer mixed services like investment management, fund monitoring, and overall financial advice. Here are the best Robo-advisor platforms that can help you grow your money. But before anything else, we need to learn what Blockchain and cryptocurrency are. How do they work? Let’s figure out why this widely-used “coin of the internet realm” is so popular, and how it operates. And maybe, you’ll find the best cryptocurrency to fit your lifestyle. The concept of Blockchain is pretty straightforward. Blocks contain transaction details and other information. Each block gets added to the public database or network used. One of the most unique qualities of both Blockchain and cryptocurrency is that there is no governing body overseeing these transactions. As such, the database is built by the users, adding on information to other existing information like links to a chain. The information stored in Blockchain may include the date and time of the transactions, as well as who did the transaction. Though you will remain anonymous, of course. However, Blockchain isn’t just for cryptocurrency. To learn more about its other uses and additional information, check out our introduction to Blockchain. For currencies like Bitcoin, you won’t be able to receive verification from banks or other authorities. Instead, cryptocurrency gets verified through an elaborate process of problem-solving. The servers present a network of people with a mathematical puzzle they must complete. The catch? They are racing against everyone else. The first in the cryptocurrency’s network to finish solving the equation creates the official record of the block. This process is what they call mining. The miner who solves the puzzle first gets paid in a specific cryptocurrency. If you’re interested to know more about cryptocurrency, we cover everything you need to know in this cryptocurrency guide.
The Crypto Exchanges
Just like real-life currency, cryptocurrencies naturally have an exchange rate. As our economy is divided by regional currencies with varying prices, you will need your physical money’s value and find its equivalent in cryptocurrency. Because cryptocurrency relies on peer-to-peer trust, there are several tools available for you to do so. If you know how to trade cryptocurrency, you will navigate the cryptocurrency exchange world in no time at all. By using cryptocurrency exchanges, you can exchange not only fiat-to-crypto but also crypto-to-crypto. Check out our helpful guide on cryptocurrency exchanges if you want to learn more about this. Meanwhile, here are some cryptocurrency exchanges to get you started on your mining and trading journey.
The Crypto CoinBase
One of the most reliable fiat-to-crypto exchange platforms is Coinbase. The service is as popular and as old as Bitcoin, almost going hand-in-hand. As such, it is the perfect exchange for any beginner thinking about using cryptocurrency. Not only does Coinbase have a comprehensive and rigorous vetting process, but it is also very secure. Aside from functioning as an exchange, the service can double as a cryptocurrency wallet, which we will talk about later on. To date, Coinbase supports a number of reliable and well-known cryptocurrency coins. These are the following coins you can trade, use, and keep on Coinbase:
Bitcoin (BTC) Ethereum (ETH) Ripple (XRP) Litecoin (LTC) Bitcoin Cash (BCH) Stellar Lumens (XLM) Dogecoin (XDG)
Gemini
If you’re looking for a completely secure and all-around cryptocurrency exchange, look no further than Gemini. Gemini exchange is perfect for those who want to exchange much hefty amounts of money without fear of getting hacked or stolen. Not to mention, this is perfect for those who simply want to trade day by day. With its intuitive and clean interface, Gemini is perfect for keeping track of your daily trades to any cryptocurrency. Most especially, Gemini highlights trading for Bitcoin and Ethereum, thanks to its Orderbook feature that displays their trading prices for each day. You can toggle your settings so that it refreshes at a certain rate. That way, you can track the currency’s growth and make an informed decision before trading. Gemini supports the following currencies:
Bitcoin (BTC) Bitcoin Cash (BCH) Ether/Ethereum (ETH) Litecoin (LTC) Several ERC-20 tokens (e.g. 0Z, Augur, Basic Attention Token, Bread, Dai)
Bitcoin is dubbed the most popular form of cryptocurrency for a good reason. While some argue that cryptocurrency is unpredictable and untrustworthy, it is actually less volatile than people think. Fiat currency or “legal tender” currency is at higher risk for inflation every day. For Bitcoin users, there is set inflation protection to keep your assets safe. Not to mention, Bitcoin pioneered anonymous financial transactions. That way, you won’t have to worry about companies selling your private information to anyone. There’s so much to do in Bitcoin that we can’t cover in just one sitting. Learn what is Bitcoin and how to mine Bitcoin as well. Litecoin comes highly valued by cryptocurrency miners and trusted even by Coinbase. Cryptocurrency experts project that Litecoin will sustain its popularity for at least 10 more years. That way, you don’t have to worry about losing your assets anytime soon. If you want to know more about this currency, you can check out our guide to see for yourself if Litecoin is safe to invest in. It is also important to note that Ethereum pioneered a smart contract system for its blockchain servers. Ethereum does away with middlemen and intermediaries to cut the process short. This also ensures both parties in a transaction get what they came for at all costs. Eliminating the middleman ensures a much faster, yet still secure system. If this has you interested, learn how to invest in Ethereum today and save yourself a lot of hassle. Since its inception in 2016, Ripple has seen nothing but growth over the past few years. Its value has been raised three times its original price, which is much more than we can say for other currencies. Its verification process differs from Bitcoin, making it much faster to build blocks. While Bitcoin focuses on staying away from financial institutions, Ripple seeks to improve it. Thanks to its core features, Ripple provides much faster, safer, and easier transactions than your standard bank protocols. To learn more about the benefits of Ripple, check out our buying guide to Ripple here. Critics are not quiet about their concerns for Tether’s claims of a 1:1 fiat-to-crypto ratio. But while many are still wary of its regulations, we can’t argue that Tether processes transactions much faster. Not to mention, transaction fees are far cheaper than other currencies. Like with any other cryptocurrency, there is a high risk of trusting any service to handle your money. However, if stability is a major selling point for you, then Tether is the best choice.
Digital Wallets
Digital cryptocurrency wallets may come as hot or cold wallets. Hot wallets exist on the internet. They are much more accessible and easier to set up. However, it comes at a higher risk of susceptibility from hackers and cybercriminals. On the other hand, cold wallets are offline and much more secure. The only catch is that not many cold wallets are universal when it comes to accepting a certain form of cryptocurrency. For both of these wallets, you will need a set of public and private keys. Private keys are for you to access your account and assets. Meanwhile, you can give public keys to others in order to facilitate trade, sale, and other transactions. These are vital components of any digital wallet. Other digital wallets such as Coinbase not only act as a wallet but as a market as well. All in all, careful research must be done when choosing your next wallet. To help you out, we’ve compiled a list of some of the most secure cryptocurrency wallets as well as the best Bitcoin wallets. Regulation Technology or RegTech is a compliance measure that manages regulatory processes within the financial industry using a mix of IT, AI, and Big Data. On the outset of fintech, there has been a rise in money laundering, identity theft, and other types of cyberattacks. Regtech is seeking to combat these by implementing tools that will automatically monitor online transactions in real time basis to mitigate irregularities that might arise.
Data Privacy and Cybersecurity
Data Privacy and cybersecurity are two factors that contribute to why regulators are pushing for stringent compliance protocols in fintech. Above all else, the sensitive consumer and corporate financial data are to be protected the most. But as many entities get connected, the cyber threats in fintech become more vivid that hampers true financial innovation. For this reason, fintech companies are now adopting the best practices in cybersecurity. Many are now switching to cloud technology for an agile business model and swift banking process. Using cloud technology and cloud computing, fintech companies are given an avenue to manage user data in a secure and trusted infrastructure.
ICO Frauds
We are no strangers to ICO frauds. Due to the anonymous nature of cryptocurrency, it is susceptible to frauds that can cost millions of dollars. Time and time again, we hear news about cryptocurrency scams and the common reason why people fall for it is its quick return on investment. Some scammers create intensive publicity to gain investments on ICOs that fraudsters already own. Some people use ICO for money laundering, while others are using a pyramiding tactic to encourage more investors before they go untraced. Due to the illicit activities involving cryptocurrency, some countries have already warned about joining ICOs if not banning it at all. If you are interested in participating in ICOs, here’s an ultimate cryptocurrency guide to getting you started.
Innovation and User Experience
User experience drives innovation and that is true in banking and the financial industry in general. Now more than ever, traditional banks must be able to step up and harness the potential of technology in their business. Even in the digital era, many people are still either unbanked or underbanked; the same segment that has the highest share in the use of mobile devices. This is where alternative financial providers find their opportunity. The widespread use of mobile devices even in the most impoverished corner of the world has allowed neo-banks to flourish. With user experience in mind, neo-banks and fintech startups have utilized mobile devices to bring financial services closer to people through mobile payment apps, P2P lending, and other innovative means. People switching to banking alternatives is the greatest threat to incumbent institutions. Unless they follow the new paradigm set by fintech, century-old entities will remain at the brink of obsolescence.
