It’s the payment app you use to split the bill with friends, the chip in your ATM card and much of what your bank does behind the scenes so you can do more with your money.
Practically everyone with a smartphone will have utilised fintech already. It’s an industry with a plethora of applications – beyond online banking, fintech can even apply to real estate and risk management. With all these uses it’s no surprise that financial technology is projected to reach a global market value of $305 billion by 2025.
In a nutshell, fintech brings the innovation of technology to finance in its many forms and services. These tools streamline and support multiple types of transactions.
You can find fintech options in the market if you’re looking for more rewarding ways to use your savings, especially if traditional banks and financial institutions don’t offer the products or services you need.
The world of fintech may seem intimidating at first glance, but once you get the hang of learning (and using) the basic industry terms, you will discover how fintech will work best for you and what you want to get out of your investments.
What is fintech?
Fintech is a fusion of the words “financial” and “technology”, which speaks to what it aims to do: use new tech to improve and automate the use and delivery of financial services.
You probably don’t realise how often you’ve been using fintech because it often runs in the background of everyday life: software and algorithms keep your apps running smoothly, giving you already-analysed intel on the stock market and approving credit ratings on multiple devices.
The term is applied to the technology utilised at the back-end systems of established financial institutions but as tech continues to evolve to be used in consumer-facing services, fintech now covers multiple sectors.
That’s how fintech now includes your money transfers, depositing a check with your smartphone, applying for credit, raising money for a startup or managing investments.
Fintech is a steadily growing industry, and it’s branched off into other sub-industries such as:
- Insurtech (insurance technology)
- Regtech (regulatory technology)
- Investtech (investment technology)
Using fintech for your investments and wealth management has multiple benefits.
Fintech gives you the freedom to choose what new tech works best for you, the ease of access to automate your finances as you see fit and find the tech that brings you closer to your financial goals.
5 fintech terms you need to know
Knowing fintech terms and practices means you will be able to better identify and understand investment opportunities when they arise.
Think of the following terms as your starter pack as a fintech investor–it’s by no means exhaustive, but will take the guesswork out of commonly used industry-specific language and terminology.
1. API (Application Programming Interface)
APIs describe how two applications or systems communicate with each other. It’s how fintech is so accessible and user friendly.
This is how APIs work: you use your app to connect to the Internet, the app sends information to a server, that server receives the information, interprets it, takes action and sends the response back to your phone. The app you used then interprets the data it got and shows you the information in a format you understand.
For example, when you wish to settle payment for a purchase online, you’re using an API. An API allows a fintech app or program to reach a bank or financial institution.
APIs are the backbone of many fintech tools you’re familiar with: open/mobile banking, investments, trading, payment services like PayPal or Venmo and cryptocurrency are all powered by APIs.
Cryptocurrency is virtual currency, digital tokens or coins that you can transact on a decentralised ledger called a blockchain. Cryptocurrency is created by networking software which ensures safe trading and ownership, using cryptographic processes put in place to guard against fraud.
The allure of cryptocurrency is that it’s a decentralised system–meaning it operates independently from any central authorities like banks or governments, unlike most currencies worldwide which are volatile because their value can change depending on political or economic events.
Examples of cryptocurrencies are Bitcoin, Ethereum and Dogecoin, the last of which actually began as a joke but is now quite valuable.
3. Blockchain technology
A blockchain is a public, online ledger where every single cryptocurrency transaction is held.
That’s why bitcoin or other cryptocurrency activities don’t need a third party to process payments: it constantly updates with every transaction. It’s a system used to record information in a way that makes it difficult or impossible to change, hack, or cheat the system.
Cryptocurrencies are digital currencies that use blockchain technology to record and secure every transaction.
An e-wallet, also known as a digital wallet, is a virtual financial account that lets users store funds and savings and make transactions all from the convenience of their computers or mobile phones.
E-wallets store payment information, allow users to accept payments for services rendered and receive funds internationally. These don’t require you to have a bank account with a physical firm or branch.
It’s convenient because it eliminates the need to carry a physical wallet. You can do all your transactions online! Think: PayPal, Apple Pay and Google Pay.
Digital wallets are also the main way you can use cryptocurrencies like bitcoin.
5. Peer-to-Peer (P2P) Lending
P2P lending lets individuals get loans or funding directly from other individuals without needing to process through a bank or other financial institution.
P2P lenders and borrowers both want to make transactions that give them a better rate or return on investment than what banks currently offer. Fund transfer and payments are conducted via the platform. The process can be fully automated, or lenders and borrowers can haggle.
P2P lending is closely linked to crowdfunding–you’re able to raise or acquire money from other people. It usually takes the form of business loans, say you’re trying to get people to invest in your business or project.
Whatever you’re thinking of using your savings for–an easier, more rewarding financial tool than a bank account or a simpler way to match funding for a small business–investing is more effortless than ever with fintech designed to make it as straightforward as possible.
Want to learn more fintech and gold terms? Listen to our podcast episode so you can be up to date with all the latest lingo.