Financial technology, or FinTech for short, is one of the most exciting – and fastest growing – areas in global business today. While the definition may be simple, products and companies that employ newly developed digital and online technologies in the banking and financial services industries, how it is used, and its impact on consumers is much more complex. In fact, in a relatively short period of time, the emergence of a new generation of FinTech has greatly impacted how we do business, transact as customers, and think about the future of finance. Among other things, it is significantly blurring the lines between business services, allowing bankers, advisers, and technology providers to provide nearly identical services.

Drivers of innovation

A variety of factors are at work when we look at the advancement of FinTech.

Technological advancements have changed how we do nearly everything in our day-to-day lives. Technologies such as IoT, AI, blockchain and cloud computing are the major drivers of FinTech companies.

Consumer behaviour, particularly in Gen X, Y and Z, has shifted and the previously existing financial systems in some markets are simply not keeping pace with societal changes, allowing technology enabled players to enter the market.

Barriers to entry have lowered as technology has flourished, forcing financial institutions to change or be left behind. It has opened the door for new challenger start-ups, like Monzo in the banking industry, who are targeting consumers with different needs and behaviours.

Greater access to information through analytics, artificial intelligence, and cloud computing allow companies to see trends – and adjust to them – more quickly.

Investment in the sector has been gargantuan and is continuing to grow rapidly, ensuring we will see many more advancements in the near future.

A new relationship with money

“FinTech has changed the way people think about money and value.”

FinTech has changed the way people think about money and value exchange in a real-time, digital world “Cashless” businesses are popping up around the everywhere, forcing reluctant consumers to adopt the habit of digital transactions and governments to discuss whether it is discriminatory or simply progress.

Requiring consumers to pay electronically for goods and services instead of using cash is just the first step. Tech giant Amazon is leading the way in merging an online shopping account with a traditional brick and mortal experience in nine cashier-less convenience stores to test their new concept. Customers simply grab what they need, leave the store, and the items are automatically charged to their Amazon account. Concepts like these will likely shape the future of shopping.

Payment transfers though smartphones or smartwatches are another example of FinTech advancements many consumers have adopted today. While PayPal has been in this game for a long time, relative newcomers like Venmo, TransferWise and Zelle are revolutionising how we share money for common interactions like splitting a bill and selling items to friends. Add to that the rise in crowdfunding sites like GoFundMe that allow nearly anyone to create a simple way for those who care about a person, situation, or cause to contribute with a few clicks.

Much less understood, but likely more innovative in the long run, is the rise of digital currencies like Bitcoin and the record-keeping technology known as blockchain behind them. While not yet well-integrated into our daily lives, it could eventually greatly change how we pay, save and borrow money, as well as how we manage financial risk.

FinTech as an enabler for better financial services

IoT, AI, blockchain and cloud computing are some of the technologies driving change in how consumers interact with those they purchase from and how they manage their money. Although traditional financial services players may consider FinTech a disruptor of their industry, those that are embracing technology innovation are transforming the industry from the outside in, and succeeding in areas traditional players have failed in. FinTech companies are now leading the industry and are creating a wide range of new financial products and services, with the purpose of making money management easier and more effective.

Borrowing & lending money: Getting access to funds has become much more transparent and less centralised, and the traditional way of borrowing money from a bank via loans and mortgages is being joined by options like crowdfunding and peer-to-peer lending. These new, non-traditional methods of sharing money have allowed investors to flourish while giving those who may not qualify for a traditional loan access to the money they need through resources like Seedrs and others.

Financial markets: Originally built in a pre-digital world, financial markets are seeing a good deal of disruption and innovation. The use of artificial intelligence (AI) and machine learning is allowing algorithmic or automated trading in the stock exchanges. Prediction markets, like Augur, aggregate data through connections and network intelligence to predict possible future events. This new access gives individuals access to trading facilities that were once only available to corporate investors.

Asset management: Data processing and analysis tools and technologies have increased automation, specifically in asset rebalancing. Additionally, cloud-based, robo-advisory-enabled platforms are using algorithms to advise users about investment and asset management.

Regtech: With changes happening so fast, it is hard for many businesses to compete yet still remain within their industry’s regulatory frameworks. Using big data and machine-learning, regtech tools monitor transactions and identify outliers that may indicate fraudulent activity. By identifying potential threats in real time, risks are minimised, and data breaches can often be addressed or completely avoided.

Grandtech: While FinTech companies have long focused on Gen X and Millennials, some innovators in the market are creating protections to look after grandparents and great-grandparents who are considered financially vulnerable. Entrants like SilverBills in conjunction with Eversafe aim to make it easier to administer the fragmented process of managing senior citizens monthly bills. By linking all of the senior’s various financial accounts to the service, the app can learn their habits and send alerts when it spots something unusual, like 2:00 a.m. ATM visits.

Where do we go from here?

While advancements in the area of FinTech have been happening at lightning speed, we have only just begun to scratch the surface of what is possible and likely to happen in the next few years. It is no exaggeration to say that FinTech is literally changing our lives and habits by making it easy to trade, bank, and exchange money without the need for physical human interaction. However, the financial sector has a few challenges to overcome, especially in the regulatory and data protection space, to win consumer trust and for FinTech to truly overtake the market. With big data, blockchain, AI and so many other tech advances already in use or on the horizon, business leaders are advised to seek opportunities and adopt FinTech applications in their own business models to win tomorrow’s consumers.