What is FinTech?

Picture: Sxc.hu

Picture: Sxc.hu

Published Feb 27, 2017


You’ve heard it at conferences, in meetings and maybe even bandied about at dinner parties. Ever since a wave of financial technology start-ups emerged after the 2008 subprime mortgage crack-up, “fintech” has become shorthand for a digital revolution that could sweep away antiquated banking practices.

But its definition has become so elastic that it’s hard to know what it is. Here’s a primer.

1. What is fintech?

It’s a catch-all label applied to companies using the internet, cellphones, cloud computing and open-source software to make banking and investing more efficient. It’s divided into two spheres: consumer-facing companies that offer digital tools to improve the way individuals borrow, manage money and finance start-ups, and back-office ventures that help financial institutions streamline their operations.

2. Why the buzz?

Fintech could reshape the financial industry and disrupt some of its biggest players. Peer-to-peer lenders use the web to match borrowers with investors, a model that’s shortened loan approvals to hours versus weeks at traditional banks. 

In investment management, giants such as BlackRock and Vanguard Group are using algorithms called “robo-advisers” to automatically adjust portfolios in accordance with a customer’s risk preferences.

In the capital markets, start-ups and stalwarts are experimenting to see if blockchain, the freely available database that underpins the digital currency bitcoin, can replace existing methods of transmitting assets and currencies. Scores of institutions are also racing to use blockchain to simplify the way securities are traded, settled and recorded.

3. Who’s policing this?

Watchdogs around the world have generally welcomed fintech because it promises to make financial transactions easier, cheaper and more transparent. 

4. What threat could fintech pose?

While fintech companies offer financial services - online mortgages, auto loans and retirement accounts of all kinds - the convenience may lure some consumers into commitments they don’t understand or can’t keep. Fintech could also supplant neighbourhood brick-and-mortar banks, leaving low-income households without access to checking and savings accounts or credit cards.

5. What are regulators doing so far?

They’re in the early stages of figuring out how to protect consumers and the financial system. In December the US Office of the Comptroller of the Currency said it would issue modified charters to fintech firms that would require them to follow some federal banking rules.

Read also:  The fintech bubble doesn't really look like one

Britain’s Financial Conduct Authority runs a “sandbox” programme that works with early-stage start-ups to ensure they comply with regulations. Some fintech companies are looking to limit regulatory scrutiny and expand their influence in Washington by forming and joining lobby groups.

6. Are investors betting on fintech?

Yes, big-time. Venture-capital firms ploughed more than $17billion into fintech start-ups globally last year, a sixfold jump from 2012. Last year, China overtook the US as the top destination for fintech investment. Singapore has more than 100 fintech start-ups.

7. Are the big banks worried?

Definitely. Lenders accept that technology is going to upend their industry the same way it has other sectors. While robo-

advisers and other applications may help banks better serve their customers, these innovations could also displace thousands

of jobs. 

Banks, brokers and other traditional players also worry that, as the rules are being written, fintech firms are using the advantage of being unregulated to grab market share. 


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