Financial technology is simply the innovation and technology that aims to counter conventional financial practices in the delivery of various financial services. It’s an emerging field which makes use of advanced technology to enhance various financial activities. The most important areas in financial technology are inventory management, risk management, contract management, capital budgeting and much more. There are also areas where the impact of financial technologies is being seen, for instance, with the growth of Internet and mobile communication and e-commerce.
The definition of fintech actually refers to any financial technology that makes the provision of financial services that are faster and more efficient than those provided in the past. Most people think that the term fintech refers only to technological advancements, but this isn’t always the case. Technological innovations don’t necessarily originate from technological innovations. Sometimes it comes from applying new and better principles and practice that already existed in the financial services sector.
As an example, let’s take a look at the application of accounting software, especially popular among small and medium-sized businesses. This software helps managers manage their financial records by organizing, storing and tracking customer information more efficiently. This allows the banks and other large financial institutions to make informed decisions about who to provide credit and who not to. Now, in some sense, fintech startups are responsible for the increased productivity of these large-scale institutions.
Another area in which financial technology has had a profound effect is in the area of finance and insurance. Fintech startups have often contributed significantly to the development of banking and insurance practices, especially in the area of risk management. Risky investments have been a cause of great concern ever since the onset of the global credit crunch. Fintech companies have worked hard to counteract this by developing better ways to provide stable financing options for businesses and by encouraging the formation of wealth management units within banks and other financial institutions.
Finally, many traditional banks and lenders have begun to re-examine their investment practices. Part of this may be due to the perception that traditional banking is becoming too risky and that private investment may be a better fit for those who need financing but who are highly unlikely to have access to the traditional banking networks. At the same time, some traditional banks have also begun to look to reduce their investment portfolio in order to free up capital for other lending purposes. In either case, fintech has played a major role in assisting these efforts. Fintech companies providing products and services outside the traditional banking environment have provided a vital source of funding for many traditional banks, especially for small-dollar commercial real estate loans. In fact, recent reports have shown that some traditional banks are turning to Fintech companies for mortgage refinancing funding as well as commercial refinancing.
The impact of the fintech industry on the financial institutions that provide investor and consumer financing has been substantial. This impact has only increased as the number of Fintech companies has grown. While the impact of the fintech industry on the overall health of the financial institution is a significant consideration, the impact of Fintech on the profitability of individual areas of business is even more important. As the number of new and growing Fintech companies continues to rise, the profitability of certain areas of business will continue to rise, and current business owners can expect continued profitability as long as they remain involved with their own business.