Financial technology, or fintech, is the intersection of financial services and digital technology. While it’s not a new concept—the first ATM was introduced in 1967—its rapid expansion and advancement in recent decades have transformed the financial industry and, by extension, online financial education.1 Finance professionals must be well-versed in how fintech works and its applications if they hope to be relevant and competitive in today’s financial environment.
Read on to learn more about modern fintech applications such as blockchain, cryptocurrencies and digital banking, including how they affect financial services and what you need to know to boost your career opportunities.
What Is Financial Technology (Fintech)?
Financial technology refers to using new technology to provide financial services more efficiently. From mobile payments to peer-to-peer lending to crowdfunding, fintech has dramatically changed how we handle our finances. You used to need to meet with a mortgage broker in person to apply for a mortgage. Now, you can do it completely online with just your phone.2
While some fintech concepts may still seem edgy and beyond the mainstream, such as blockchain contracts, others, such as payment apps, have become an accepted part of everyday life. From 2020 to 2021, US adoption of fintech increased by 52%, going from 58% to 88%. To put that in perspective, it took 20 years for the refrigerator to reach that level of adoption, ten years for computers, and five years for smartphones.3
With advancement occurring at such a rapid rate, online financial education must incorporate new technologies to provide a comprehensive education. Financial professionals must understand fintech to meet changing customer expectations, understand regulatory compliance issues and make informed, data-driven decisions.4
Digital banking has been a mainstay offering for decades, dating back to 1994, when Stanford Federal Credit Union became the first financial institution to offer all its US customers online banking.5 Since then, digital banking solutions have proliferated. The future of banking is digital, and some of the emerging trends include the following:
All digital banks are growing in popularity, particularly among younger, tech-savvy customers. These banks, also called "neobanks," don’t have physical branches. All their services are offered through mobile apps and websites.
Because of their lower overhead, they can offer services at reduced rates. Their customer-first approach and cost-effective offerings are disrupting the traditional banking model.6
Artificial intelligence (AI) has widespread applications in digital banking. Robo-advisors provide financial planning and investment advice based on algorithms with little to no human interaction or supervision.7 Although some applications of AI, such as robo-advisors, may eliminate jobs in financial services, many other AI applications will create new jobs.
AI can help financial professionals understand their customers and markets and drive insights to create better products and services. Some of the areas that will benefit the most from AI include:8
- Creating personalized services and products
- Identifying new opportunities
- Managing risk and fraud
- Enabling transparency and compliance
- Automating operations
- Reducing costs
Cryptocurrency was created as an alternative to traditional banking, so it’s not surprising that banks have been hesitant to embrace it. Crypto assets are, by nature, decentralized, eliminating the need for trust in an institution, which is the foundation of traditional financial services.
However, there is room for financial professionals to adopt cryptocurrencies, provided it’s handled with an eye toward risk management. Banks could offer onboarding services to novice crypto investors to help them set up wallets and secure digital currencies from theft or hacking.
Or, as JP Morgan did recently, banks can take on cryptocurrency exchanges as customers.8 Instead of avoiding cryptocurrencies in hopes of staving off change, financial professionals should look for the potential benefits and opportunities they offer.
Blockchain technology allows for transparent information sharing within a network. Cryptocurrencies are the most well-known use of blockchain technology, but many others exist.
Blockchain technologies can be used to reduce risk, improve customer experience, and generate new revenue opportunities. Some of the benefits of blockchain in financial services include:
Blockchain uses a shared, unchangeable ledger that only members can access. Once data has been entered into a “block,” it can’t be altered, and it’s encrypted end-to-end. The information isn’t stored in one single server. Rather, it’s distributed across a network of computers, making it more difficult for malicious actors to access.9
Time and Cost Efficiency
Smart contracts are stored on a blockchain and are only executed when predetermined conditions are met. These contracts are possible because blockchain is programmable. They eliminate the need for an intermediary by implementing simple “if/when…then” statements.10
Financial institutions can use smart contracts to automate workflows and save time and money on transactions. For example, according to Juniper Research, blockchain deployments will allow banks to save over $27 billion in cross-border settlement transactions by 2030, a savings of over 11% per transaction.11
Fintech Companies Driving Financial Inclusion
One of the most transformative impacts of fintech companies has been their role in promoting financial inclusion. In many regions of the world, vast sections of the population have historically been excluded from the financial services industry.
These types of companies, with their mobile banking platforms and other innovative solutions, are bridging this gap. By offering simplified, easily accessible financial transactions through smartphones, these companies are ensuring that even those without access to standard banks can participate in the financial world.
Financial inclusion doesn't just mean having a bank account. It encompasses a range of financial services, from loans and insurance to investment opportunities.
By leveraging technology, fintech companies can tailor these services to individual needs, promoting not just accessibility but also financial literacy. This education is paramount in helping individuals make informed financial decisions and manage their personal finance effectively.
While incumbent financial firms and traditional banks were initially skeptical of these new entrants, the success of fintech companies in reaching underserved markets has prompted many to rethink their strategies. Collaborations between fintech firms and traditional institutions are becoming increasingly common, combining the latter's reach and trust with the former's innovation and agility.12
Financial Institutions Embracing Fintech Evolution
The financial industry, once seen as resistant to change, is undergoing a paradigm shift. Financial institutions are recognizing the potential of financial technologies and are either developing in-house solutions or partnering with fintech companies. This adaptation is crucial for these institutions to remain relevant in a rapidly changing financial sector.
The benefits of these collaborations are manifold. For monetary institutions, it means staying updated with the latest financial innovation, enhancing their service offerings and reaching newer markets. For fintech companies, it's an opportunity to tap into the established trust and customer base of traditional banks.
Moreover, the ongoing partnership between fintech companies and financial institutions is shaping the market in ways we've never seen before. It's bringing about increased financial stability, efficiency in financial intermediation and even contributing to broader economic development. As these collaborations deepen, customers can expect faster, more personalized and more efficient financial services.12
Financial Literacy in the Digital Age
With the surge in services available at our fingertips, there's never been a more crucial time for financial literacy. Understanding personal finance, the implications of financial decisions and the nuances of the financial market are essential in today's digital age.
Fintech companies, along with institutions, have a role to play here. With their wide reach and tech-driven solutions, they are uniquely positioned to deliver related education at scale. Innovative tools, apps and online courses can help individuals grasp complex financial concepts, from investing and saving to taxes and retirement planning.
It's not just about making services accessible but also ensuring that users have the knowledge to navigate the financial world confidently. As we continue to see innovations in financial technologies and services, the importance of financial literacy will only grow. By prioritizing “properly introduced” financial education, fintech companies and entities can ensure not just financial inclusion but also empower individuals to take control of their financial futures.13
The Fintech Revolution: A New Wave of Financial Tools and Innovations
The modern era is witnessing a profound shift in how financial services are offered and consumed, predominantly catalyzed by financial technology advancement. Central to this revolution is the emergence of novel tools designed to make banking and financial planning more intuitive and user-centric.
One of the most notable advancements in the fintech space is peer-to-peer lending. By directly connecting borrowers and lenders, it bypasses other financial institutions, providing a more streamlined, often cost-effective alternative.
This approach has proven especially impactful in emerging markets, where traditional financial systems may not be as accessible to the broader population. Such platforms not only democratize lending but also play a pivotal role in enhancing consumer welfare by offering fairer interest rates and flexible terms.
Big data analytics is another transformative force in the fintech realm. Monetary institutions, from retail banking outfits to specialized fintech startups, harness vast amounts of data to tailor their services to individual users. This not only allows for more personalized financial experiences but also enhances risk assessment capabilities.
By analyzing a user's financial behavior, institutions can make more informed lending or investment decisions, thereby reducing potential losses.
In summary, the advent of innovative monetary tools and methodologies is reshaping the very fabric of the financial sector. As traditional boundaries blur and new players emerge, the commitment remains the same: leveraging fintech innovation to ensure a more inclusive, efficient and beneficial financial landscape for all.
Prepare for the Future of Fintech with William & Mary
No online education program in finance is complete without a thorough grounding in fintech and its application in business and financial services.
In the William & Mary Online Master of Science in Finance, you’ll learn the skills you need to lead in business and modern finance confidently. As a specialized credential, a master’s in finance degree can make you more competitive in your career in as little as 15 months.
- Retrieved on July 20, 2023, from americanbanker.com/slideshow/the-evolution-of-the-atm
- Retrieved on July 20, 2023, from forbes.com/advisor/banking/what-is-fintech/
- Retrieved on July 20, 2023, from plaid.com/the-fintech-effect-2021-mass-adoption/
- Retrieved on July 20, 2023, from linkedin.com/advice/1/how-does-fintech-impact-role-skills-financial-professionals
- Retrieved on July 20, 2023, from cointelegraph.com/news/a-brief-history-of-digital-banking
- Retrieved on July 20, 2023, from financemagnates.com/fintech/payments/a-deeper-dive-into-neobanks/
- Retrieved on July 20, 2023, from investopedia.com/terms/r/roboadvisor-roboadviser.asp
- Retrieved on July 20, 2023, from wolfandco.com/resources/insights/how-cryptocurrencies-may-impact-the-banking-industry/
- Retrieved on July 20, 2023, from ibm.com/topics/benefits-of-blockchain
- Retrieved on July 20, 2023, from ibm.com/topics/smart-contracts
- Retrieved on July 20, 2023, from consensys.net/blockchain-use-cases/finance/
- Retrieved on July 20, 2023, from mckinsey.com/~/media/mckinsey/industries/financial%20services/our%20insights/building%20the%20ai%20bank%20of%20the%20future/building-the-ai-bank-of-the-future.pdf
- Retrieved on July 20, 2023, from forbes.com/sites/esade/2022/11/02/how-fintech-can-foster-financial-inclusion-and-literacy/?sh=32118e006415