What is the meaning of Fintech? | Payments Explained | EBANX (2024)

This fast-growing sector has changed the way the world does business. According to CNBC, the industry grew between $100 billion USD between 2010 and 2018. The reason for this substantial growth belies in the methods in which it accommodates with the way we live today. But what is a fintech? Simply defined, fintech explained is this: technology that works with financial exchanges to make for more efficient, reliable, and easy transactions. Using automation technology, that is, technology that doesn’t require human interaction, users are able to manage their finances better. Charts, statistics, data, and current status updates are all part of how fintech can influence financial life. Up to date activity is available on websites and apps, while payments can be made from anywhere, at any time.

The technology works by creating software that will work in real time over the internet. Updated financial operations have been created to accommodate electronic financial activity. Algorithms, cloud-based technology, and extensive backend engineering makes fintech possible. Examples of fintech usage are peer-to-peer payments, online ecommerce purchases, donating to funding platforms, and online banking, to name a few. People who use fintech do so on a near-daily basis.

There are many ways to use fintech, but in general terms, fintech works by digitally transferring money. How this money is transferred, and which parties are transferring the money and why, are the circ*mstances that dictate different types of fintech.

One popular method is through mobile payments. According to Stastica, this trend is on a steady incline. The number of mobile payments has more than doubled over the last five years. Mobile payment is just what it sounds like: money that is transferred through a mobile app to a third party. Who received the money varies: companies, hired contractors, and peers are all likely recipients of funds.

Cloud applications and downloaded e-software include budgeting and tax applications. These financial tools are commonly integrated in real time status by linking the user’s bank and credit accounts to the software to track spending and execute filings.

Crowd funding is a popular fintech platform in which individuals or solopreneurs set up a fundraising account for peers to donate money. Usually there’s a project involved and an intent. Different applications have different uses and terms – for example, in Kickstarter the funds will only be released to the fundraiser if their financial goal is met. This entices larger contributions from donors. Money is transferred through payment cards, or platforms like PayPal, into the fundraiser’s linked account.

Other fintech solutions lean heavily in asset management and investing. For example, robo-advising is on the rise, in which robots use AI technology to aid in investments. There are also trading apps that have algorithms to advise on potential buying and selling. This sector is somewhat controversial as these roles are traditionally filled by a human advisor. Still, many established financial firms use this technology to help with portfolio management and investment strategy. Stock trading apps enable independent investors to manage their own portfolio without having to work with the stock exchange itself.

Fintech can be used by anyone with an internet connection. The accessibility of fintech is what makes it so appealing. Revolutionary changes in the financial industry has affected the way businesses do work. It’s allowed retail industries to reach every corner of the world, start-up businesses to operate with lower overhead, and large corporations become more globally minded with seamless processing. Fintech is so popular, companies are leaning into third party fintech companies to support their businesses. Venture capitalists flock to invest in fintech startups because they see the future and undeniable value of the sector. The details of just how fintech helps entities are straightforward.

For example, start-ups benefit from fintech for innovations like crowd funding, online banking, and versatile payment options. For big corporations, they’re able to reach a global economy and offer better accessibility and workflow for their international offices. Remote workers greatly benefit for the ease of payment options, while solopreneurs are able to get work done with less overhead and faster paydays. Finally, peer-to-peer exchanges are easily done now that money doesn’t have to be withdrawn from a bank, and a check doesn’t have to be written or cashed. Money moves in fast, immediate motions. In short, anyone who wants efficient purchases and processes would benefit from fintech.

Connectivity and nontraditional financial services offered by fintech solutions means that the unbanked populations around the world are a new demographic that can now contribute to the economy. With cash-driven economies, fintech offers a way to buy in the same way as a buyer with a bank account. In Latin America, where much of the population does not have a bank account, smart phones are common. Without even needing a computer, these individuals can start using fintech to make purchases today.

This will likely be a boon to this type of economy. For example, OpenPay in Mexico allows online payments that don’t require a bank account. This is a huge stimulus. Money will flow in and out of a region currently hampered in its unbanked status, creating a new economy where its contributors can thrive.

Investors are taking notice. The region is already rampant with an emerging tech sector that venture capitalists are betting on. With an underbanked population, there’s much more room for a company to grow. The landscape is growing through financial technology with advancements that are designed specifically to cater to these populations. The more fintech caters to places like Latin America, the more it will thrive and innovate.