Technology in finance has been in existence for quite some time now. But of late, an increasing number of companies have started to integrate both finance and technology more closely than ever before. 

This exercise has led to the creation of a new segment of industry - fintech. But then, what is the meaning of fintech? In this chapter of Smart Money, we’re going to explore the realm of fintech and try to understand what it is all about. Let’s begin. 

What is fintech?

Fintech is a term that was formed by combining two words - finance and technology. It refers to anything that provides financial services such as banking and insurance to customers through the extensive use of technology, software, and the internet. 

One of the main objectives of fintech is to provide consumers and businesses better and quicker access to financial services compared to traditional providers of such services, who rely on offline modes of delivery.  

What are fintech companies?

Now that you’re clear with the fintech definition, let’s take a look at what fintech companies are and how they work. 

Basically, companies that deliver financial services to its customers through the use of technology, software, and the internet are termed as fintech companies. Over the past few years, there has been an explosion of fintech startups in India. 

The number of companies that seek to deliver financial services through the internet has been growing at a rapid pace, which is likely to continue on for the next few years as well.  

Fintech companies usually have very little to no physical presence. They generally prefer to restrict their businesses to the virtual medium. This allows them to operate in a lean and agile manner. 

That’s not all. Since they don’t have much physical presence, their operating costs are far lower due to the lesser amount of resources that the company requires. This allows them to offer financial services at more affordable rates and charges to their consumers compared to the more traditional players. 

What are the different types of fintech?

Fintech is a broad category that includes different kinds of financial services and technologies. Here’s something that can give you a better perspective of just how many different types of fintech services are currently in existence. 

• Banking tech

Banking tech is basically a sub sect of fintech that aims to deliver banking services to customers through the use of the internet and technology. Digital-first banks, also called neo banks, are banking tech companies that aim to provide all or most of the banking services such as deposits, transfers, withdrawals, and more through just the online mode. 

• Payments tech

Fintech that aims to deliver instant payment solutions to customers through the use of internet and mobile applications is sub-classified as payments tech or paytech. PayPal, Google Pay, Phone Pe, and other similar players in India are a few examples of basically fintech companies involved in providing payment solutions.

• Lending tech

Borrowing money no longer involves having to make multiple physical visits to branches of financial institutions and filling out mounds of never-ending paperwork. Lending tech is a sub sect of fintech that provides instant loans and other lending solutions to customers through the online mode. Digital lenders like Navi are the perfect example of how fintech makes it easy to provide lending solutions. 

• Insurtech

Just like lending, the insurance industry is also very reliant on physical visits and one-to-one meetings with agents. However, there are fintech solutions that aim to deliver insurance directly to the consumer without the involvement of middlemen. This sub sect of fintech is known as insurtech. Players like Digit Insurance and Acko are ideal examples of how fintech has helped revolutionize the insurance industry. 

• Wealth tech

Fintech, through wealth tech also offers unique solutions designed to help customers in their wealth creation journey. Wealth tech deploys artificial intelligence (AI) and machine learning (ML) to help investors earn money while still operating within the realms of their risk appetite. Robo-advisory is one such step that many wealth tech companies have taken to make this possible. 

• Capital raising

There’s also a sub sect of fintech that even helps individuals and businesses raise capital. By utilizing the power of the internet, many fintech companies enable the raising of funds through crowdfunding. This helps businesses that are just starting out on their journey gain access to some much-needed funds. 

The advantages and disadvantages of fintech?

Fintech is still an emerging industry as far as India is concerned. However, at the outset, it seems to offer several advantages and a couple of disadvantages to both individuals and businesses alike. 

Advantages of fintech 

Here’s a quick look at a few of the advantages offered by fintech. 

• It helps the company providing fintech services reduce costs.
• It increases efficiency and speeds up the delivery of financial services.
• It improves the revenue of companies providing fintech services.
• Since it is all about digital delivery of financial services, it increases the convenience factor for consumers. 
• It provides an objective and bias-free view and advisory. 

Disadvantages 

Fintech, although a great proposition, does suffer from a few disadvantages. Let’s take a quick look at them. 

• Since fintech involves collection of immense amounts of consumer data, there's the concern of a lack of privacy. 
• Fintech relies on technology and the internet. Individuals who are not tech savvy may not be in a position to utilize fintech to its fullest potential. 

Wrapping up

With this, we’re done with the first chapter of this module. Hope you’ve understood the meaning of fintech. In the next chapter, we’re going to take a look at the beginning of India’s fintech industry. 

A quick recap

• Fintech refers to anything that provides financial services such as banking and insurance to customers through the extensive use of technology, software, and the internet. 
• Companies that deliver financial services to its customers through the use of technology, software, and the internet are termed as fintech companies.
• Fintech companies usually have very little to no physical presence. They generally prefer to restrict their businesses to the virtual medium. 
• Fintech is a broad category that includes different kinds of financial services and technologies
• Sub sections of fintech include banking, payments, insurance, lending, wealth creation, and capital raising. 
• Fintech helps businesses reduce costs, increase revenue, and provide financial services to its customers in a more efficient and speedy manner. 
• Since fintech involves collection of immense amounts of consumer data, there's the concern of a lack of privacy. 
• Individuals who are not tech savvy may not be in a position to utilize fintech to its fullest potential.