What Is Fintech (Financial Technology) And Why Does It Matter?

Fintech is the intersection of finance and technology, and encompasses a wide range of different services and companies. Many fintech companies are startups looking to disrupt or improve the industry, but there are also existing banks and other financial companies that are using technology to improve the services that they offer.

In this article we’ll explore what fintech is, as well as take a look at what it’s used for and what it can look like for you.

Fintech At A Glance

Here are some key points about fintech:

• Fintech is the intersection between finance and technology
• You're likely using fintech innovations for financial transactions without even realizing it
• Fintech can automate traditional banking tasks and make them more convenient
• Fintech solutions generally use extremely high levels of security

We’ll dive into further detail on each of these topics.

What Is Fintech? A Quick Definition

Fintech is an umbrella term that is used to describe any intersection between financial companies and technology. Fintech is used for business-to-business (B2B), business-to-consumer (B2C) and individuals. Fintech has rapidly evolved into a successful industry of its own, with numerous innovations in digital money, bookkeeping and online banking. Some fintech companies are primarily technology companies that are operating in the financial industries, while others are legacy financial services companies that may have evolved into fintech companies or use fintech to improve their processes.

How AI Impacts Fintech

While fintech has been around for decades, predating the rise of consumer-facing artificial intelligence (AI), AI has started to change the way fintech companies work. AI and machine learning are used in fintech to help companies with everything from sifting through mountains of data, providing better personalization and combating fraud.

7 Ways You Might Use Fintech Products

You may use fintech every day, perhaps even without realizing. Here are a few of the most common ways fintech is part of many consumers' everyday lives:

1.   Digital And Mobile Payment Apps

Digital payments such as e-commerce, online payment and point-of-purchase payments using a mobile device rather than a credit card or debit card are some of the most common ways that many people use fintech companies. Venmo and Paypal are two of the most common mobile payment apps currently available.

2.   Fintech Banking Services

Long gone are the days that you had to make an appointment or walk into a physical bank location to make financial transitions on your account. Fintech has streamlined many of these tasks, including mobile banking, mobile apps, digital banking and money transfers.

3.   Personal Financial Management (PFM)

Personal Financial Management (PFM) apps like Rocket Money^SM allow people to more efficiently handle common personal finance and budgeting tasks. PFM apps can give you insights and savings hacks for lowering your monthly bills or canceling unwanted subscriptions.

4.   Cryptocurrency

Cryptocurrency is one popular application of financial technology. Blockchain technology is the underlying mechanism that makes financial instruments like cryptocurrency possible. Without this technology, popular cryptocurrencies such as Bitcoin and Dogecoin would not be possible.

5.   Robo-Advisors

Another application of fintech is robo-advisor technology. Robo-advisors provide automated financial advice to investors, often for a fraction of the cost of a full-service advisor. Many consumers who are looking for portfolio advice without paying a full-service advisor or advising company use a robo-advisor.

6.   Crowdfunding

Crowdfunding is another application of fintech, where a person or company can easily raise money from a large group of distributed individuals. Two examples of crowdfunding are sites like Kickstarter, where many backers come together to fund an idea, and GoFundMe, where people raise money to support individuals.

7.   Peer Lending

Another example of fintech in action is peer lending. Peer lending allows individuals who might have trouble qualifying for a traditional loan to receive smaller amounts of money from a larger group of people. On the other side, individuals can choose to become microlenders and potentially earn interest on their loans as they are repaid.

What Are The Biggest Fintech Apps And Companies?

Here are some of the major players in the fintech space, with a focus on those that U.S consumers are most likely to use.

• Venmo: Venmo is one of the largest peer-to-peer digital payments fintech apps, allowing people to easily send and receive money from friends and family.
• Robinhood: Robinhood is an investing app that makes it easy to trade stocks, ETFs, options and other financial instruments.
• Coinbase: Coinbase is a secure platform that allows users to easily buy, sell and trade many different forms of cryptocurrency.
• Plaid: Plaid allows consumers and businesses to securely connect bank accounts and other financial information without having to share their actual account information. Many other fintech companies use Plaid to facilitate their transactions.

How Fintech Protects Your Financial Information

Encryption is the primary way that fintech companies protect your financial information. Because their customers' data and financial information is the primary source of revenue for fintechs, security is paramount to how they work. Nearly all fintech companies use some of the highest levels of security and encryption available. The Consumer Financial Protection Bureau (CFPB) and other regulators also protect consumers as they interact with fintech companies.

Financial Technology FAQs

What is fintech in simple terms?

At its simplest, fintech is just a portmanteau of the two words “finance” and “technology.” Fintech can mean different things depending on the context or company. Some fintech companies are primarily technology companies that are looking to disrupt or improve the finance industry, while other fintech companies are finance companies looking to take advantage of technological improvements.

Is PayPal a fintech company?

Yes, PayPal is one of the oldest, largest and most well-known fintech companies. PayPal even makes that very clear on their homepage, stating that "PayPal is a financial technology company, not a bank.”

What is the main purpose of fintech?

The main purpose of fintech companies is to provide valuable services to their customers. This is primarily done by leveraging technology across various areas of the financial industry. This might include sending peer-to-peer payments, making it easier to access money or streamlining the lending process.

Is a bank an example of fintech?

A traditional bank is not necessarily an example of a fintech company, however many banks are either becoming fintech companies or partnering with other fintech companies to provide valuable services to their customers.

The Bottom Line: Consumers Rely On Fintech Every Day

Fintech companies work at the intersection of both finance and technology, helping technology companies work with financial information and using technology to improve services offered by financial companies like banks. Fintech is a growing industry that is becoming increasingly pervasive — you likely are working with fintech companies every day, even if you don't realize it.

If you're looking to improve your financial situation, consider downloading the Rocket Money app today. You can start using the power of fintech to make your financial tasks easier.