Financial technology (Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services.At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones. Fintech, the word, is a combination of "financial technology".
Broadly, the term "financial technology" can apply to any innovation in how people transact business, from the invention of digital money to double-entry bookkeeping. Since the internet revolution and the mobile internet/smartphone revolution, however, financial technology has grown explosively, and fintech, which originally referred to computer technology applied to the back office of banks or trading firms, now describes a broad variety of technological interventions into personal and commercial finance.
In short, it’s exceptional customer experience. That’s the cherry on top that differentiates fintechs and makes them attractive in customers’ eyes. The insights from Gartner show that the majority of companies (89 percent) see customer experience as their primary basis for competition. This approach is made up of a few distinctive features that define fintechs’ competence in providing exceptional customer experience.
When targeting a certain market niche, fintech companies don’t just create one more financial product. Instead, they offer a conceptually new and more effective way to perform familiar financial operations. Take Simple as an example. Instead of merely showing customers their account balances, the app shows them a 'safe to spend' sum. This approach completely differs from banks’ traditional practice, which is usually nothing more than sending customers their transaction histories with little helpful data on top of that. Thus, providing forecasts or giving advice about future financial behavior using a mobile application remains the prerogative of fintech solutions so far.
Apart from intuitive product design and 24/7 accessibility, fintech solutions are easy-to-use and offer simpler ways to meet customers’ needs. For example, Roostify aims to ease and speed up home lending for customers. Being a self-service platform, it auto-populates data fields in a loan application from Mint or TurboTax accounts and eliminates the need for paper statements.
Initially, both banks and fintechs were rather hostile to one another. Since banks have always preferred to create almost everything in-house, they saw no use in cooperation with fintechs. But with time, banks realized both the opportunities and threats arising from fintechs, so the need for collaboration in creating banking software became obvious.
Banks have seen that fintechs know how to meet customers’ needs and serve them better while most financial institutions cannot be as creative and quick-to-market as fintechs. In their turn, in spite their ‘first mover’ advantage, fintechs realize they need more than a wow solution. Going beyond the adoption stage, fintechs usually lack banks’ capital, scale and regulatory support to further promote and support their solutions. Thus, partnering with banks is logical for fintechs, too.
The last two are currently the most popular forms of cooperation.