What Is Fintech And How Does It Work?

Finance May 19, 2020
What is fintech? What is Financial Technology? Fintech Startup
Photo by Kelly Sikkema / Unsplash

Fintech, which stands for Financial Technology, is one of the fastest growing tech sectors now . Many large companies now invest and innovate in this area. Many large tech businesses are behind the fastest-growing Fintech startups.  As the consumers are smarter than they once were and as people become busier doing their jobs, the demand for simpler, faster, more effortless, and contactless services keeps increasing. Fintech startup offers the solution.

What Is Fintech: Definition and Elements

What is Fintech? This is the first question to answer before digging out deeper in to how it works.  Fintech descries new tech, which works to improve and automate the use and delivery of financial services. Use of technology in financial sectors aims at simplifying the financial operations, cutting down the service time, as well as cutting down the service costs.

To be classified as a Fintech company, startup needs to meet at least the following elements:

  • Financial operations. They are not limited to the equivalents of banking services like money transfer, deposit and withdrawal, credit application, or managing investment. It also deals with how businesses raise money, payment methods, and even compliance and regulatory aspects.
  • Technology management.  On one hand, Fintech services are often associated with the use of certain software to make financial services accessible anywhere and anytime. On the other hand, technology management also deals with how startup offers streamlined processes, minimizes (if any) document requirements, and bypassing the lengthy procedures associated with conventional banking services. These are all possible with the aid of technology, like software apps.
  • Innovation management. This aspect deals with how Fintech startups keep seeking innovative ways to deliver the financial services to the customers. In the past, people had to go to the bank to apply for a credit. Now, they can do all the processes simply by using their smart phone at home.

How Does Fintech Works?

As discusses above, Fintech startup works by applying technology to reach more customers (particularly those who are excluded from conventional banking services) and to make the processes streamlined. The way Fintech works is seen from the parties involved in the process, as follows:

  • Business to Businees (B2B). Fintech is used by businesses (as the customers) to get financial supports, like loans, from other businesses (as lenders). The Fintech startup provides a cloud-based platform that allows businesses to discuss and negotiate the credit requirements. B2B services involve cross-border payments.
  • Business to Consumer (B2C). PayPal and Apple Pay are among the most popular examples of B2C application of Fintech. The Fintech platforms allow the business to have financial deals with the consumers. Insurance and credit are the most prominent uses of B2C services.
  • Peer to Peer (P2P). This application is most popular in lending services. The Fintech platform allows person to person financial transactions, lending, payments, and many more.

The point is that Fintech streamlines the processes in financial services. This is what modern people look from the fast growing startup in this sector. Of course, Fintech is still to grow for many years to come. A number of issues, such as regulatory aspects still need to be addressed.


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