Wikipedia defines fintech as new technology to compete with traditional financial methods to deliver financial services using Artificial Intelligence, Blockchain, Cloud Computing and Big Data. The dictionary defines fintech as computer programs and technology that supports the banking and financial industry.
What’s new about Fintech?
The word “fintech”. Before fintech, the finance industry just called it “technology”. That doesn’t mean fintech isn’t exciting and creating new methods that are different from the technology offerings of yesterday.
Fintech is not simply technology. If a company is changing how the financial industry works, that’s fintech. In essence, changing the business model; how business is done.
FinTech has been changing business models since the 80’s. A company, called Fair Isaac, made a dynamic shift in finance when they developed the FICO score in 1989. Fair Isaac took data about how you paid your bills, ran it through an algorithm and created a predictive score.
Before Fair Isaac, companies who wanted to loan you money or sell you a product on credit had to call your credit references, call your employer, and phone your friends to ask how you pay your bills.
Lenders wanted to know how much you had in the bank, were you really at the job you put on your application and get character reference. Now that was an invasion of privacy.
Your credit score changed all of that. Your credit score allowed a credit card company like Visa to make a credit decision about you in minutes, not days. That is fintech.
Technology traditionally has been developed to help workers do their job. Todays fintech companies are trying to develop systems and software to do those jobs. Not unlike robots taking over building cars.
When you think about fintech, you think about banking. Although fintech has helped banks expand their bank offerings, it has actually been one of the biggest disrupters of banks. Services that were only in the domain of banks can now be done by financial start-ups such as Paypal and Venmo.
With the help of AI, artificial intelligence, companies are making decisions that were once in the hands of seasoned financial professionals. Now knowledge is passing from computer to computer, making financial decisions faster, and allowing those professionals to do more important jobs.
Today if you want to stay relevant, and compete with larger competitors, or become a large competitor, you must be prepared to adapt to change or a fintech start-up could be your demise. Fintech is allowing companies to think faster, work safer, and lower costs. Fintech can take down a giant; look what a little start-up called Amazon did to the retail industry.
That is what is so exciting about fintech; fintech does not only work for the banking industry. Many areas of business rely on financial technology.
With Blockchain, companies can identify products, verify the identity of buyers and sellers and confirm contracts; all making sales and financing safer. Using blockchain, Walmart can track a tomato grown on a farm in California to the point of where and when it was paid for at a register in Des Moines, Iowa. They know who sold it, how they paid for it, and who might have bought it. Having all of that information has tremendous financial value.
When we make a purchase at a local retail store using a credit card, it is settled by fintech. We don’t have time to wait for someone on the other side of a phone to decide if our purchase is approved. The seller at the store wants our purchase to go smoothly and move you past the register so they can serve the next customer. Fintech helps that retail store eliminate fraud and quickly turn their inventory into cash. Apple managed to change the model of how we pay, even in a mature industry.
Fintech is changing Accounts Payable departments, how companies pay their bills, and Accounts Receivable departments (how companies finance and collect their money). Fintech is redefining how we send, receive, process and pay invoices. Fintech is working to make the process of all things having to do with finance faster, safer and hopefully cheaper by eliminating inefficiencies and fraud. If it involves money, spending it, receiving it, borrowing or lending it, then it is being enhanced by fintech.
Even Human Resources, how companies manage and pay their employees, is seeing changes through fintech. What does Human Resources have to do with fintech? Payroll, payroll advances, stock options, 401k retirement savings and employee benefits all have to do with money and finance.
Saleforce.com is in the business of sales and marketing. Its service tracks everything from purchasing, to inventory to sales. What does sales have to do with fintech? All of that data is linked and integrated into an accounting system at a business that bills, pays and collects money.
Sales people use fintech everyday to help them sell more goods and services. Instantly knowing a customers credit, cost of goods, and profit margins increases sales.
Fraud detection and online safety are areas that are critical to business. Cyber-crime is rampant, with online fraud a multibillion-dollar industry. Financial institutions lose billions each year through online fraud. Fintech is leading the way in fraud prevention; the 21st century version of cops and robbers.
You may have interacted with fintech already. PayPal, Venmo and Zelle were all fintech startups that disrupted the banking industry, Safely, swiftly transferring money worldwide.
Let’s look at a company that is not the exact definition of fintech: Docusign. What do paper documents have to do with fintech? Getting contracts signed has always been a sore point for companies. There will always be someone who offers to sell and another person agreeing to buy, or someone offering to lend and someone willing to borrow. Every industry has contracts that need to be signed.
Obtaining signatures through the mail is time consuming and expensive, which slows down transactions. DocuSign created a service where all signatures are done online in real time. A digital contract today can be identified by who signed it and where and when it was signed. The courts have even agreed to accept these digital signatures if something goes wrong.
Fintech, like the original dot com 20 years ago, is changing the playing field once again. Like superheroes, fintech is allowing us to jump higher, run faster and think smarter in nearly every industry. Are you up to the challenge?