Fintech is a word that stands for 'financial technology' and refers to the range of applications that technology (especially digital technology) has in the financial sector. Let us take a closer look at some of these applications.
One of the most successful outcomes of digital infrastructures has been the proliferation of digital payment platforms, with obvious benefits for those who need to make payments or transfers: it is now done very quickly (often instantaneously) and at a much lower cost. This sector is driven by technology companies and start-ups, and is characterised by a constant quest for innovation.
Digital banks (or neo-banks) are one of the clearest examples of the changes in the financial landscape made possible by innovation and digital technology: they are essentially online banking services that can only be accessed via digital channels. This largely "dematerialised" structure makes it possible to offer agile services, but above all it is often accompanied by low average operating costs and competitive account fees compared to traditional banks (many of which are also working to create or acquire their own digital banks).
Robo-advisors provide automated financial and investment advice through the use of algorithms: they require users to provide at least their investment objectives and personal risk tolerance. They then provide an optimised investment portfolio based on the information provided, which can be invested in once a deposit account has been opened.
When technology meets the world of insurance, we speak of 'insurtech'. The use of technology makes it possible to handle large amounts of data. The result, on the customer side, is the personalisation of policies; on the insurer side, the development of predictive analytics models that can make risk assessment and actuarial premium calculation more efficient.
Technologies have also improved the effectiveness of models and management tools for financial players. In particular, artificial intelligence and machine learning are promising technologies for effectively assessing risk and developing predictive models. These are tools that can also provide potentially very useful services in terms of optimising management costs or limiting legal costs by promoting "compliance", i.e. respect for laws and regulations. In this sense, it is useful to mention the specific application of "regtech", which is designed precisely to optimise the regulatory compliance processes of financial institutions.
Blockchain technology is defined as a decentralised or distributed digital ledger. Using cryptography, it is possible to collect blocks of data and link them together to form a chain. In this sense, the immutability of the chains of these blocks is one of the key aspects that allows its use in the financial sector: it is the main proof of reliability that blockchain can offer. The best known financial application of this technology today is cryptocurrencies: Bitcoin, Ethereum, Cardano, Ripple, etc.
Not only cryptocurrencies: blockchain technology is also at the basis of decentralised finance (DeFi), a set of financial services based primarily on 'disintermediation'. An example of this is 'smart contracts', contracts made possible by the blockchain, which, thanks to the immutability of the aforementioned chain, make possible typical traditional financial services such as loans.
One of the applications of fintech, i.e. the emergence of financial services platforms, has allowed the development of forms of peer-to-peer lending (peer-to-peer or P2P) and crowdfunding (collective financing or fundraising). These are platforms that offer both investors and companies alternative financing channels to banks, credit institutions and bonds. It is worth noting that this is also an area of alternative investment, but one that is characterised by poor regulation and high risk, and is therefore typically reserved for professional investors.
Read also:
Robo-advisors: what are they and how do they work?
Alternative investments: risks and advantages
