Finance Technology: What It Is and How It Affects Our Lives.

Finance technology, or fintech, is a term that describes the use of technology to improve and automate the delivery and use of financial services. 

Fintech can help companies, business owners, and consumers better manage their financial operations, processes, and lives. 

It can also create new markets and opportunities for financial inclusion and innovation.

Fintech is composed of specialized software and algorithms that are used on computers and smartphones. 

It can cover various sectors and industries, such as education, retail banking, fundraising, investment management, and cryptocurrencies. 

Fintech can also enable different types of transactions, such as money transfers, payments, lending, investing, and trading.

Fintech is not a new concept. 

It has been evolving since the invention of digital money and double-entry bookkeeping. 

However, in the 21st century, fintech has grown explosively due to the internet revolution and the emergence of new technologies such as artificial intelligence (AI), blockchain, cloud computing, big data, and biometrics.

According to EY’s 2019 Global FinTech Adoption Index, two-thirds of consumers worldwide use at least two or more fintech services, and those consumers are increasingly aware of fintech as a part of their daily lives. 

Fintech also attracts significant funding from investors and entrepreneurs who see its potential to disrupt the traditional financial industry and create value for customers.

Types of Fintech Applications

Some examples of fintech applications that you may use, or encounter are:

Robo-advisors

These are online platforms that provide automated investment advice and portfolio management based on algorithms and user preferences. 

Examples include Betterment, Wealthfront,  Ellevest and Acorns.

Payment apps

These are applications that allow users to send and receive money using their smartphones or other devices. 

Examples include PayPal, Venmo, Zelle, Peyeer and Square Cash.

Peer-to-peer (P2P) lending apps

These are platforms that connect borrowers and lenders directly without intermediaries such as banks. 

Examples include LendingClub, Prosper, and Upstart.

Investment apps

These are applications that allow users to buy and sell stocks, bonds, funds, or other assets using their smartphones or other devices. 

Examples include Robinhood, E*Trade, and Stash.

Crypto apps

These are applications that allow users to buy, sell, store, or trade cryptocurrencies such as Bitcoin, Ethereum, or Dogecoin. 

Examples include Coinbase, Binance, and Crypto.com.

Benefits of Fintech

Fintech has many benefits for both consumers and businesses. 

For consumers, fintech can offer convenience, speed, lower costs, personalization, transparency, and access to a wider range of financial products and services. 

For businesses, fintech can help reduce operational costs, increase efficiency, enhance customer experience, expand market reach, and foster innovation.

Challenges Facing Fintech

However, fintech also faces some challenges and risks. 

These include regulatory uncertainty, cybersecurity threats, privacy concerns, and ethical dilemmas.

Regulatory uncertainty

One of the main challenges of fintech is to navigate the complex and evolving regulatory landscape that applies to different markets, jurisdictions, and products.

Fintech companies need to comply with various rules and standards regarding consumer protection, anti-money laundering, data security, taxation, licensing, and supervision. 

However, these rules may not be clear, consistent, or up to date with the fast-changing nature of fintech. 

This can create confusion, ambiguity, and compliance costs for fintech companies and regulators alike.

Cybersecurity threats

Another challenge of fintech is to ensure the technical security and reliability of the products and services. 

Fintech companies rely heavily on digital platforms, networks, and data to operate and deliver value to customers. 

However, these also expose them to various cyber risks, such as hacking, phishing, malware, denial-of-service attacks, or data breaches.

These risks can compromise the confidentiality, integrity, and availability of the systems and data, and cause financial losses, reputational damage, legal liability, or regulatory sanctions.

Privacy concerns

A related challenge of fintech is to protect the privacy and personal data of the customers. 

Fintech companies collect, store, process, and share large amounts of sensitive information about their customers’ identities, behaviors, preferences, and transactions. 

This information can be used to provide better services, tailor products, or offer insights. 

However, it can also be misused, abused, or leaked by unauthorized parties.

This can violate the customers’ rights to privacy and data protection, and erode their trust and confidence in fintech.

Ethical dilemmas

A final challenge of fintech is to address the ethical implications of the products and services. 

Fintech companies use advanced technologies such as AI, machine learning, blockchain, or biometrics to enhance their capabilities and efficiency. 

However, these technologies can also raise ethical questions about their fairness, accountability, transparency, and social responsibility.

Ways in Which Fintech Can Be Made Consumer Friendly

In the rapidly evolving landscape of financial technology, prioritizing consumer-friendliness is paramount. 

Fintech platforms have the opportunity to enhance user experiences, promote transparency, and personalize services to meet the diverse needs of consumers through implementing strategies such as the following:

Fairness

Fintech companies need to ensure that their products and services are fair and do not discriminate against or harm any groups or individuals. 

For example, fintech companies that use AI or machine learning to make decisions or recommendations about credit, insurance, or investments need to avoid biases or errors that could result in unfair outcomes or treatment for some customers.

Accountability

Fintech companies need to be accountable for their actions and decisions and be able to explain and justify them to their customers, regulators, and other stakeholders. 

For example, fintech companies that use blockchain or distributed ledger technology to record and verify transactions need to ensure that they have adequate governance and oversight mechanisms to prevent fraud, misuse, or manipulation of the data.

Transparency

Fintech companies need to be transparent about their products and services and provide clear and accurate information to their customers, regulators, and other stakeholders. 

For example, fintech companies that offer payment apps or crypto apps need to disclose their fees, risks, terms and conditions, and data practices to their users and obtain their consent.

Social responsibility

Fintech companies need to consider the social and environmental impacts of their products and services and align them with the values and expectations of their customers, regulators, and other stakeholders. 

For example, fintech companies that offer carbon offsetting or green finance need to ensure that they are actually contributing to the mitigation of climate change and not engaging in greenwashing.

Conclusion

Fintech is a powerful force that is transforming the financial sector and creating new opportunities and challenges for both consumers and businesses. 

Fintech can offer many benefits such as convenience, speed, lower costs, personalization, transparency, and access. 

However, fintech also faces many challenges and risks such as regulatory uncertainty, cybersecurity threats, privacy concerns, and ethical dilemmas.

Fintech companies need to address these challenges and risks by adopting a responsible and ethical approach that balances innovation with regulation, security with privacy, efficiency with fairness, and profit with purpose.

Ignoring technological change in a financial system based upon technology is like a mouse starving to death because someone moved their cheese – Chris Skinner