Financial technology has become widely accepted, and many businesses and individuals prefer to handle transactions digitally.
After reading this, you'll understand:
Subscriptions have become a popular way for fintech companies to earn revenue.
A new trend involves fintech companies offering credit-building services.
Many of the fintech innovations supported by Hedera offer financial services to the unbanked and underserved.
Fintech, short for financial technology, refers to technologies designed to improve financial services. Fintech companies have carved out an essential role in society, as many businesses and individuals prefer to handle transactions digitally. Some fintech companies, such as Paypal, emerged early in the fintech revolution and have stood the test of time. The success of these early adopters, combined with our world's increasing reliance on technology, has led to an ever-broadening answer to the question: “What is fintech?” As of May 2023, there were more than 25,000 fintech startups worldwide.
In this article, we'll look at the history of fintech, how it works, and what its future may hold.
The modern fintech revolution can be traced back to the 1990s, but new technologies aided in finance well before that. Telegraphs were introduced in 1838 and were used to consolidate financial and commodity markets. A precursor to the ATM, the Bankograph, was released in 1963, allowing people to deposit coins, cash, and checks. In 1967, Barclays Bank introduced the first ATM, widely praised as one of the most important and widely-used fintech developments.
Electronic funds transfers (EFT) began to see widespread use in the 1960s, allowing people to transfer money over long distances. NASDAQ was established in the US in 1971, marking the beginning of the transition from physical to digital securities trading.
The development of personal computers, financial calculators, fax machines, and the internet in the 1970s and 1980s laid the foundation for many new financial services and products, such as online banking and trading. United American Bank partnered with Radio Shack to produce a custom modem in 1980, letting bank customers access their account information at home. In the mid-90s, Stanford Federal Credit Union and Presidential Bank began allowing all of their customers to bank online.
E-Trade was released in 1992, making it easier for retail investors to trade stocks, bonds, ETFs, and mutual funds. Payment processors, such as PayPal, began emerging in the early 2000s. The first iPhone was introduced in 2007, leading to the widespread adoption of mobile banking. Cryptocurrency was first introduced in 2009 when Satoshi Nakamoto launched Bitcoin. Since then, banks, mobile payment providers, and even Coinstar have begun offering cryptocurrency services.
The fintech industry covers various technologies, enabling digital banking, transfers, trading, and more. There are numerous types of fintech solutions that work in various ways. For example, most payment apps aggregate your bank accounts and credit cards on a single application. You can easily select one of your stored payment methods when you need to transfer funds. Similarly, you can choose which account to use for deposits after receiving money. Most payment apps encrypt your transaction information before sending it to their servers.
Many fintech institutions use APIs to securely connect your bank account with their website or personal finance apps. Once connected, you can use your account to authorize transactions. Nowadays, many fintech companies offer mobile apps. It's estimated that mobile internet traffic accounts for nearly 60% of all internet traffic, so it's no surprise that fintech companies try to make it easier for people to use their services on mobile devices.
Just like traditional financial institutions, fintech companies often earn revenue by charging fees for their services. For example, Cash App charges businesses to use their app while charging individuals fees for instant transfers. Similarly, the popular cryptocurrency exchange Coinbase charges users transaction fees and earns commissions on custodial funds. Coinbase also has a subscription service that offers $0 trading fees and pre-filled tax forms. Subscriptions have become a popular way for fintech companies to earn revenue. According to Forbes, 47% of Gen Zers and 44% of Millennials pay for monthly fintech subscriptions.
Fintech services continue to gain popularity thanks to their ease of use, enhanced consumer financial control, and financial education programs. According to a 2021 consumer report from Plaid.com:
93% of the consumers surveyed said that fintech applications save them time.
78% said fintech applications save them money.
81% said these services give them more control over their finances.
73% said fintech applications helped them make smarter financial decisions.
71% said they reduced financial stress.
Investment firms are pouring tons of money into the sector, with global fintech investments reaching $210 billion in 2021. This access to capital is leading to exponential growth in the fintech space.
In the coming years, we'll likely see more fintech companies employing the use of artificial intelligence. AI technology can be used to automate financial recommendations and risk assessments, enhance access to customer service, and analyze large amounts of data for fraud detection.
We're also seeing an uptick in fintech companies offering credit-building services. Many consumers see fintech programs as a way to enhance their financial literacy. During uncertain economic times, many can be expected to turn to fintech to help them improve their financial standing.
Cryptocurrencies, smart contracts, distributed ledger technology, and NFTs will likely see more use in the fintech space in the coming years. Web3 fintech solutions lower the barrier of entry for financial services while allowing consumers to access financial services without relying on centralized intermediaries.
As interest in fintech grows, Hedera continues to make it easier for emerging technologies to succeed. The Hedera Foundation supports fintech with grants. Of the 195 grants the Hedera Foundation gave in 2022, 23 were awarded to fintech startups. There are currently nine fintech projects live on Hedera's mainnet, with more to come.
Many of the fintech innovations supported by Hedera offer financial services to the unbanked and underserved. For example, EMTECH uses the Hedera network to connect the unbanked with the global financial system. EMTECH's G.R.E.E.N CBDC service makes it easier for central banks to create central bank digital currencies that don't harm the environment.
Hedera's low fees, secure infrastructure, high throughput, and suite of easy-to-use tools make it an ideal solution for fintech startups looking to use Web3 technologies. Additionally, Hedera is EVM compatible, meaning fintech companies building on the Ethereum network can easily transition to Hedera.