Have you ever paid for something with your phone? Or received a money transfer via mobile app in a matter of seconds? If yes, then you’ve experienced the massive impact of the fintech revolution. However, fintech is a vast area of technology – there are different types of fintech and fintech products.
Just a few clicks are enough to send a money transfer to someone on the other side of the world – all that is needed is an app and an Internet connection. That is not something a lot of people would deem possible at the beginning of the XXI century! And yet, this is our new reality. How much fintech can do for you? Learn more about the types of fintech to explore the possibilities.
What exactly is FinTech?
The word “fintech” is short for “financial technology.” The term is broad so it’s no surprise that there are different types of fintech. However, if you use any type of banking application or shop online, you’ve already interacted with fintech. It’s a group of new technologies created to expand the world of financial services. It encompasses software, mobile and web applications, cloud services, online extensions of traditional banking services, and entire companies. Whether you were aware of it or not, different types of fintech have already changed the way we manage our money.
Forms and types of fintech influence not only individual customers, but also startups, corporations, small businesses, and government institutions. Fintech companies are often called “disruptors” because they change the financial sector in an unprecedented way. There’s really no turning back from fintech. Thanks to the steps they’re taking towards changing the industry, business and everyday customers alike receive better financial services.
FinTech by numbers
The potential of fintech has been known for years. In 2016, people have been using 2-3 apps to manage their finances. In 2019, 5% of app downloads globally were financial applications. Due to the restrictions caused by the coronavirus outbreak (e.g. social distancing), all types of fintech are expected to experience a rise in popularity. Online banking, virtual transactions, and microloans are crucial for effective financial management. The investment in different types of fintech services leaves no room for imagination: in 2019 it reached over 135 billion dollars. It’s safe to assume that 2020 will keep that trend alive.
Numbers and percentages aside, everyone can estimate the potential of fintech by the sheer amount of people who choose to shop online and do not pay for their purchases with cash or card, but opt for quick online transactions. Quite impressive, isn’t it?
The growth of fintech is nurtured by new laws. The PSD2 directive established by the European Commission encourages digital transformation in the world of finance and regulates the way different types of fintech can operate across the EEA.
FinTech Examples
Now that we have defined what is fintech and how much it is worth in today’s market, we can discuss its characteristics. Apps like Paypal, Klarna, and Revolut are all considered as fintech, but they’re not the same.
These are the most popular types of fintech:
- Digital banking.
- Payment.
- Trading and cryptocurrency.
- Insurance.
- Deposit and lending.
- Capital raising.
We have to remember that fintech is constantly evolving. The types mentioned above are going to expand or perhaps even change entirely in the upcoming years. For now, we can define different types of fintech by the kind of service they provide.
1. Digital Banking
Traditional financial institutions have to adapt to modern times. The variety of types of fintech solutions has triggered the digital transformation even in the most conservative banks. Most of them have already developed web and mobile banking applications that extend their offer and keep up with the demands of their clients.
However, mobile applications for well-established banks are only one of the facets of digital banking. We have seen the rise of online banks that have only a virtual presence. Their clients on the other hand are very real. The Atom Bank has become the first online bank that has received official licensing. It’s based on an app for mobile devices and offers the whole package of services typically associated with banks: savings, mortgages, and payments. Other fintech companies, like Moven or Revolut, are on their way to becoming legitimate banks. But that is just one of the many types of fintech.
2. Payment
The type of fintech is all about money-related services. Probably the bread and butter of the world of fintech, online payments have been quickly approved by customers and raised to the status of the global standard for the preferred way of payment. It’s not surprising if we can consider the popularity of online shopping. According to research, e-commerce will make up 22% of all retail sales by 2023.
Fintech allows consumers to shop from the comfort of their homes but that’s just the beginning. Users can also pay their bill payments via their mobile devices from every part of the world. Without visiting a bank physically, they can open and manage an account. Sending and receiving direct deposits has also become incredibly easy: mobile wallets and peer-to-peer transfers are becoming the new normal.
Consumer payment services aren’t the only type of fintech connected to payment. We can also distinguish payment back-end and infrastructures that include payment processing providers, solutions for accepting electronic payments, point of sale terminals, and online debit and credit card, providers.
3. Trading and Cryptocurrency
Fintech has changed the stock market. Thanks to new types of fintech services, cryptocurrencies are growing in popularity. Fintech provides access to digital cryptocurrency markets and allows users to send and accept crypto money. The key technology that supports crypto trading is Blockchain. Blockchain secures crypto transactions and makes tampering with data almost impossible.
Different types of fintech have also made the world of trading more accessible: now every user with an Internet connection can try their luck and skills in trading. That used to be reserved for experts. Because of this, stock markets all around the world will see an increase in investment.
4. Insurance and InsurTech
Types of fintech solutions have made an impact on insurance. The main reason is that the customers expect a quick, effortless way of contacting their insurance company. They also want to compare offers from different insurance providers – preferably without leaving their homes. Fintech solutions enable a more customer-based, flexible solution for insurance. It’s part of the reason why a new term has been coined: insurtech. The future of insurtech is tightly intertwined with fintech, as proven by the Deloitte report.
5. Deposit and Lending
Deposit and lending focus on personal services in the area of loans and management of their finances and saving. It’s a type of fintech that is closely related to personal finance – supporting individuals and households in budgeting and managing their financial decisions. Deposit and lending fintech has created microloan platforms and a “buy now, pay later” systems that allow customers to pay for their purchases in 4 installments. It happens with just a few clicks on a mobile device. Alternative lending provides customers with credit scores and peer-to-peer loans without going to traditional financial institutions.
6. Capital Raising
We can’t talk about types of fintech without mentioning new ways of capital raising. Fintech enables innovative ways to raise capital without turning to traditional financial institutions. Even micro and small enterprises can find investors thanks to different types of fintech services. Capital raising provides customers with access to investments and raising capital either in exchange for equity or in return for interest rates. The most well-known alternative way of financing is crowdfunding. Crowdfunding helps entrepreneurs to raise capital for their products and/or projects. They can not only fund their goals but also market their business directly to their target audience. All they need is a platform, a good pitch, and attractive perks for those who do invest in them.
Summary
Fintech is an umbrella term for all kinds of new technologies emerging in the world of finance. They are based on online services and created by the demand of modern consumers for quick, easy, and virtual ways of managing their finances. There are different types of fintech that can be distinguished by the kinds of services they offer. The most popular ones are connected to e-commerce, like payment gateways and online payment solutions. These are all part of digital banking. In recent years, we have seen a rise of online banks – in contrast to traditional banking institutions, they don’t have physical locations. Their services are based on different types of fintech solutions. Fintech has also influenced changes in insurance and the creation of insure. Combined with Blockchain technology, we now have types of fintech products that support trading and cryptocurrencies. A lot of consumers in 2020 will appreciate new ways of lending since the global pandemic has affected personal finances. People are searching for microloans that can be obtained without visiting a bank. Lastly, fintech enabled the revolutionary way of investing in projects and products – crowdfunding. Thanks to different types of fintech, operating our finances on our smartphones and tablets is part of our everyday lives.
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January 12, 2021
