What Is Fintech? What You Need to Know

Fintech has become a prominent topic, even a very familiar one, especially in conversations among people in IT lately. If you are interested in technology, even without being passionate about it, you have probably heard the term "fintech" at least once.

You may wonder about the concept of fintech What does it mean? Why did fintech boom, and how does that affect society? In this article, let Mona Media answer those questions as clearly and simply as possible.

1. The truth about fintech that you may want to know:

• From the rumors about fintech:

Information technology and the internet keep advancing at a remarkable pace, and they have reached almost every region of the world and every corner of social life.

Of course, a modern economic sector like finance and banking is not left out. Applications of information technology are like new waves that are reshaping the whole model of how financial services have been delivered and run for hundreds of years.

And The term fintech was born from those very waves.

Since the wave of startups focused on financial technology rose after the 2008 crisis, fintech has become the face of the digital revolution, rumored to be able to completely change how the banking industry does business.

Some statistics show that global investment in fintech was only around 4 billion USD in 2013, climbed to 20 billion USD by 2016, and was expected to reach 120 billion USD by 2020. That shows the huge potential of this field, but it also comes with a number of new problems.

• So what exactly is fintech?

Fintech is a combination of Finance (money, finance) and Technology, in plain words, financial technology. Put simply, fintech means using technological innovation in financial activities and services. Fintech does not grow out of existing monetary systems. It marks the arrival of IT inside those systems.

→ So if a financial company starts applying technology to its operations, is that fintech?

No. That is called applying IT in a financial company, and it cannot be called fintech.

Fintech is used in the opposite case: an IT company deploys a service in money or finance.

Example:

When Vietcombank launched its mobile phone appthat lets customers do mobile banking, it is not called Fintech.

MONA Media bringing new data security technology into the e-wallet services of some banks, to offer convenient and safe services to users, that is fintech.

• Who manages fintech?

Fintech today serves every company that uses the internet, mobile phones, open-source software, technology cloud solutions or cryptocurrencies such as Bitcoin, with the aim of making transactions simple and convenient and improving the efficiency of banking and investment activities.

2. Some basics about fintech:

• The groups involved in fintech:

A traditional financial market has 2 parties: financial institutions (banks, investment firms, insurers, securities firms, finance companies and so on) and customers.

In fintech there are 3 parties, each affecting the others:

→ Fintech companies:

These are independent companies working in information technology, offering new products and services in finance.

The customers of fintech companies can be end users, and can also be financial institutions.

→ Financial institutions:

These are important entities in the financial sector.

Institutions are cooperating ever more closely with fintech companies, because they see how important technology is. They also invest directly in fintech companies or in research, so they stay on top of new technology and take the market.

→ Customers:

Customers here are people who use financial products and services in general.

With these new technologies, customers are the ones who benefit most from the competition among financial institutions, companies, and the conveniences new technology can bring.

• The main product groups:

By who uses them, fintech products fall into 2 different groups:

→ Group 1:

Products for consumers, digital tools and other technology. The aim is to improve how individuals borrow, manage money and fund startups.

→ Group 2:

Back-office technology products. This group supports the operations of financial institutions and of fintech companies themselves.

In practice, beyond ordinary services like lending, money transfers and payments, fintech offers a much wider range of services, for example:

Peer-to-peer lending

Crowdfunding

Personal finance advice

Data management

Insurance technology (insurtech)

Digital currency (crypto blockchain)

V,v,…

3. Examples of fintech

• In finance: Thanks to fintech, customers today can borrow money through apps such as Doctor Đồng, One Click Money, Cash 24, Money Cat and Senmo without meeting anyone in person. The whole process, from preparing documents to disbursement, is 100% online. A borrower only needs to submit an application through the website or app, and the lender reviews the loan from that information without a face-to-face appraisal. The money goes straight into the bank account the customer provides. Repayment is also 100% online, which saves borrowers a lot of time and travel costs.
• In banking: Banking apps on phones (also called mobile banking) are the clearest example of fintech in banking. These apps are run by the bank and built together with a fintech company. With a banking app, customers can manage their own accounts and make transactions such as paying bills and making internal or interbank transfers quickly, without going to a branch. Fintech is effectively an extended arm of the bank, helping it connect with customers all over the country.

• Fintech in securities: In recent years, instead of opening many trading floors, brokerage firms can move online. Investors no longer need to go to the exchange in person and can still place orders to buy and sell listed shares. This lets investors choose when to buy and sell, and keep up with daily stock information. Some well-known stock trading apps include Olymptrade and Mitrade.

4. The rise of fintech: what is behind it?

• The impact of fintech on the financial sector:

→ It changes distribution channels and traditional financial products and services:

The biggest impact is on banking services. You can see it clearly in the strong growth in recent years of social media, digital banks, mobile banking, tablet banking, internet sales channels and more.

→ Paperless financial institutions and banks:

As this trend spreads, it poses no small challenge to traditional financial services by gradually reducing the role of branches. At the same time, competition in modern financial technology among financial institutions will become fiercer.

→ Supporting high-tech applications:

Big Data helps analyze customer behavior and lets financial institutions collect data from outside and inside the company. This cuts costs, supports decision-making, and improves service quality and customer satisfaction.

→ Banks' market share tends to shrink, "making room" for fintech companies:

The clearest sign is that banks have stayed completely out of the Bitcoin virtual currency business, a new monetary system growing larger worldwide.

→ The labor market in finance and banking is changing:

Technology is predicted to replace a large number of staff at financial institutions, insurers, securities firms and banks. In their place, demand grows for highly skilled people who are strong in both information technology and financial expertise.

• Why is fintech so active?

Fintech is so active because it can reshape the financial industry while strongly affecting the factors considered most important in that industry.

Today, companies lend on the P2P model, which connects lenders and borrowers directly over the internet. It has proven effective, cutting the time to approve loans at traditional banks from weeks to a few hours.

At the same time, many big players in the financial market are testing virtual currencies such as Bitcoin, Ethereum and Ripple in pay online to replace traditional payment methods and assets.

5. Is fintech a scam?

The nature of fintech is to push finance and banking forward. But everything has an upside and a downside, and fintech is no exception. Some of the negative sides of fintech in banking today:

• Fintech carries little risk in payments. The problems occur most often in bank lending, personal lending and crowdfunding. These carry quite a lot of risk for investors, because financial and banking fintech serves many different kinds of customers, and the loans have no deposit insurance and lack transparency.
• Besides the risk of investors losing money, fintech borrowers also face many dangers from interest rates and costs that are not transparent

There are also other kinds of scams from fintech companies that you need to recognize:

• Selling courses at sky-high fees with no real value
• Offering poor-quality trading robots to cheat customers out of money
• Recruiting new members to earn commissions, no different from a pyramid scheme
• Announcing ghost projects with huge profits to lure gullible customers who lack knowledge

If you see any of these signs, do not transact at all, so you avoid losses. No reputable company makes pitches and invitations like these, inventing outlandish benefits to dazzle customers.

6. Hidden risks that fintech may bring:

Some people doubt that fintech can replace the role of traditional banks because of certain limitations, such as:

Low-income households cannot access banking services.

The ups and downs of fintech company stocks make many people question their stability and the risks of fintech is entirely a possible scenario.

Although fintech offers many kinds of financial services, too much convenience may leave some customers without a real understanding of their own rights and obligations.

Many issues about the safety and accuracy of fintech financial systems still need to be tightened and secured.

Even so, up to now this is still considered a safe and reputable financial field, not only in Vietnam's financial market but around the world.

7. Notable fintech products

Almost every financial product uses fintech, giving users new experiences and conveniences. Notable fintech products include:

Bitcoin, the cryptocurrency

Bitcoin is a decentralized digital currency developed by Satoshi Nakamoto and released as open-source software in 2009. Bitcoin is exchanged directly between internet-connected devices, with no intermediary institution. For example, a customer in the UK can send Bitcoin to a partner in Vietnam from a smartphone online, without going through a bank or any intermediary. Unlike typical currencies, Bitcoin has no central bank. It runs peer to peer over the internet. Many Bitcoin exchanges have been set up so investors can trade it easily. With supply capped at 21 million coins, Bitcoin was quickly accepted and widely used.

Types of e-wallets

An e-wallet is an electronic account that works as an online payment method, letting customers store personal information and buy and sell goods quickly and conveniently over the internet. In the last few years the number of e-wallet users has grown strongly. Popular e-wallets worldwide include PayPal, Alipay and Google Wallet.

Lending Club, a lending service

This is a pioneering peer-to-peer lending platform in the US that uses financial technology. It connects people with spare money to lend and people who need money to solve financial problems, without going through a bank or any other intermediary.

Kickstarter, crowdfunding

Kickstarter launched in New York in 2009, letting researchers and creators take their projects to the public and raise money from consumers. Founders run the whole fundraising process online. To date, Kickstarter is the largest crowdfunding site and has helped many founders connect successfully with backers.

TransferWise, peer-to-peer money transfer

TransferWise is a peer-to-peer money transfer service founded in January 2011 by Kristo Käärmann and Taavet Hinrikus. It was first used to send money abroad from London at a reasonable fee. It then spread to many countries and became popular worldwide.

Robinhood, a stock trading app

Robinhood is a very popular stock brokerage in the US. It helps investors buy and sell US stocks on its website and on a mobile app. Its user base grew sharply, from 1 million users in 2016 to more than 13 million in 2020.

8. Opposing views on the fintech wave:

• A worry for big banks:

Because fintech has such a strong impact on finance, it is bound to become a major threat to traditional banks.

In addition, the fintech companies are also gaining the upper hand in the race for market share. Faced with these disadvantages, if traditional finance and banking do not keep up with the trend, they will surely be left far behind by fintech in the near future.

• A big bet by investors?

Worldwide, in 2016 alone venture capital firms put more than 17 billion USD into startups, 6 times the figure for the same period in 2012.

In Singapore alone there are already more than 100 startups working in the fintech field.

And it is not Silicon Valley in the US but China that is the hotspot for fintech investment, with Southeast Asia expected to be the next hotspot in 2019.

Only a small share of fintech companies have gone public so far, so investors expect a wave of M&A as banks compete to find technology they can use, while startups reach maturity. It is not hard to see that fintech will be one of the hottest investment fields in the global market in the coming years.

9. Conclusion:

Fintech Although it is a field with some concerns, those concerns are in reality minor. Fintech is still a strongly growing financial technology, and the knowledge that Mona Media has provided in this article should be worth having if you are genuinely interested in the topic. We hope to bring you the most useful and necessary information about the new concept of fintech. Good luck!

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