The word fintech refers to financial services whose provision is linked to technological innovations.
The term fintech comes from two English words: finance (finance) and technology (technology). The translation would be something like financial technology. In other words, offering financial services through new technologies.
The origin of the word fintech
Although this word may seem relatively recent, the truth is that it emerged more than 25 years ago. According to Marc Hochstein, in an article written on the American Banker website. The term emerged in the early 1990s thanks to a project led by Citicorp. That is, by the financial company that is known today as Citigroup.
It would be at the nascent annual ‘Smart Card Forum’ conference, where Citicorp, trying to overcome its bad reputation for resisting technological collaboration with other companies, would reaffirm its position. They went from refusing to collaborate with new technologies to affirming: "Citicorp is collaborating because times have changed," would say Catherine Allen, a Citicorp executive at the time.
The project that the company would lead from that moment would bear the original name of fintech (Financial Services Technology Consortium). It is at that precise moment, and not another, when the term whose use has been exponential in our society and in the financial industry was born.
Fintech company or fintech service
Since it is a term whose precise definition is still in its infancy, it is widely debated whether fintech is a type of company, a type of service or a series of people. Hence, the plural term ‘fintechs’ is beginning to be used to refer to a set of services, a series of companies or the people who lead those companies.
Despite the above, the evidence shows us that these meanings are not incompatible. There are companies, specifically start-ups, whose services are exclusively fintech and traditional companies that provide some fintech-type services. Therefore, the term refers to an open idea. Open idea that fits perfectly with the word that appears in its own definition: innovation.
Types of fintech companies
Next we are going to see a series of services that apply technological innovations to provide financial services:
- Loans and credits: Through the internet, some companies offer financing services such as crowfunding and crowlending. This type of service also includes the granting of online credits. The latter grant or not credits according to the decision of automatic algorithms.
- Payments and transfers: It is no longer necessary to go to a bank branch to carry out procedures of this type. From a computer you can make payments and transfers. What's more, you can even withdraw money at an ATM without a card. All you need is a mobile application from the bank. Many fintech transfer companies are making money payments faster and cheaper.
- Investment: From new and advanced trading platforms, through wealth management robots, to personalized financial advisors. Some services of this type are attracting a lot of capital and traditional investment funds already see them as a threat to the sector.
- Personal finance: New services are offered through mobile applications that try to make personal finance more intelligent, transparent and simple. These types of services help users to plan, control their expenses and save.
- Currencies: Especially when we travel to countries with a different currency we need to change our payment currency. This process has traditionally been done through banks. Today, thanks to the development of technology, we can exchange currencies with other users through the internet.
- Chain of blocks (blockchain): The technology thanks to which Bitcoin works could be the future of financial transactions worldwide. Currently, you need an intermediary to make a transfer. For example, a bank. But what if intermediaries were not necessary? Blockchain technology creates a decentralized, digital, public registry. This record is secure, anonymous, and non-falsifiable.
Causes and consequences of fintech expansion
The causes undoubtedly have to do with the new possibilities that technology offers us. Society moves towards new horizons and investigates new ways of developing.
In fact, the corporate world has historically tended to move in the direction of efficiency. That is, to achieve the same or better in a faster, cheaper and more transparent way. That said, the high prices of certain financial services have been a cause of fintech development.
At the same time, fintech development is resulting in a continuous lowering of the costs of certain financial services. Improvements that also extend to speed, transparency and security.