Fintech or financial technology constantly evolves to enhance and automate how financial services are used or provided. Fintech helps businesses and consumers with various operations in financial management.
What Is Fintech?
Financial technology, or fintech, applies to all innovations in business transactions. Everything from the first double-entry in a ledger to the invention of cryptocurrencies is considered fintech. But the explosion of the internet and mobile devices has caused the definition of fintech to morph from backend processes to a range of personal and business finance technologies.
For instance, transferring money from your savings account to business checking from your smartphone is an example of fintech. In addition, applying for a line of credit, raising startup funds, and investment management can all be done in the palm of your hand now.
Overall, fintech has pushed the world of business and finance forward, improving all types of financial transactions.
Top 8 Categories of Fintech
The introduction of financial technology has altered how people interact with financial instruments. Not much in the business world hasn’t felt the benefits of fintech — everything from how you bank and invest, shop for products and services, or pay back friends or family members. You can initiate funds transfers, mobile payments, and investments from a smartphone tap.
Fintech aims to blend innovation with technology to facilitate, enrich, and disrupt the financial sector. The main fintech categories make significant contributions to finance and business in real life every day. The top eight fintech categories include:
Even before eCommerce, payment gateways existed. Without gateways, payments couldn’t exist. But online gateways paved the way for today’s fintech landscape of fast, easy, convenient, and accessible payments for everyone.
The most important payment gateway aspect is that a bank isn’t necessary for someone to send a payment. As a result, payment gateways eliminated the most expensive fees banks charge. In addition, gateways gave consumers several savings benefits.
Plus, fintech applications have upgraded security for online gateways. For example, many fintech companies develop ecosystems on the blockchain, further improving cost savings and the safety of money transfers compared to banks.
2. Payments Made Mobile
Nearly 84% of the world’s population own a mobile device, and by 2023, Allied Market Research expects mobile payments to exceed $12 trillion globally. This figure alone is enough to see why fintech companies constantly work to improve their services for consumers. Mobile wallets, digital tokens, and NFC technologies are at the forefront of these advancements.
Mobile payments include tools like Google Wallet and Apple Pay. These fintech services let individuals and businesses make purchases from their devices instead of having to enter sensitive card data.
It may be hard to imagine, but a cashless — and even cardless — society isn’t that far-fetched.
3. P2P Lenders
P2P or peer-to-peer lending helps individuals and businesses that otherwise can’t access traditional funding get the money they need. P2P lenders work similarly to conventional lending, but rather than working with a bank; the proceeds are distributed to borrowers by an online platform.
Traditional lenders can present several barriers to financing that some individuals and businesses simply can’t meet. However, P2P lenders’ requirements are much less rigid and have lower fees than traditional lenders. As a result, this is a viable financing option for people who have not established credit or whose credit is less than stellar.
Insurance technologies, or insurtech, apply tech developments toward improving the insurance industry. For example, competitive pricing is facilitated by real-time analyzing data with artificial intelligence (AI). However, insurtech companies have challenges, such as regulatory issues and traditional insurance companies’ reluctance to collaborate.
5. Regulation Technology
Also known as RegTech, regulation technology helps the finance industry correctly administer and apply compliant processes. One of the key functions of RegTech is monitoring and reporting for regulatory compliance. Businesses in this sector help enterprises efficiently comply with laws and regulations economically.
6. Individual Finance
Also known as wealth tech, the individual finance sector aims to improve wealth management and offers investment platforms that leverage the latest technology. Digital wealth tech tools can improve current ecosystems and help foster new ones, bringing in a new generation of investors.
Crowdfunding is a fintech application that helps people raise money for a common goal by pooling funds of multiple individuals, investors, or entities. For some, this might be the only fundraising method available. With this cash flow boost, these ventures can get off the ground or launch new projects. Most of these campaigns happen via internet platforms, have set time frames for when money can be raised and disclose specific monetary goals.
Types of crowdfunding
- Donation: Donation-based crowdfunding is when people give a campaign, company or person money for nothing in return.
- Debt: Debt-based donations are peer-to-peer (P2P) lending, which is a form of crowdfunding. The contributions are loans that must be repaid with interest by a set deadline.
- Rewards: This is when donors receive something in return for their donations. The rewards vary by the donation size, which incentivizes higher contributions.
- Equity: These donations are a type of investment where participants receive shares in the business based on how much money they contribute.
8. Equity Finance
Firms in the equity finance fintech sector help large companies raise capital. Some of them look for entrepreneurs to match with accredited investors. Crowdfunding opens up a company to the fundraising prowess of the internet, making it easy for startups to get funding.
As financial technology evolves, we’ll likely see additions to these fintech categories. Providing financial services for your customers and clients means staying updated on tomorrow’s tech advancements. So let National Merchants Association help you understand where you fit and help you maximize your business today.
ABOUT NATIONAL MERCHANTS ASSOCIATION
National Merchants Association is a merchant advocacy group dedicated to reducing unnecessary fees associated with accepting credit card payments. Since 2004, it has delivered tailored payment processing solutions and best-in-class merchant service and support for all levels of risk. Whether it’s high-risk or low-risk, brick-and-mortar or eCommerce, National Merchants Association will create the best processing experience for your business. For more information, visit www.nationalmerchants.com or call (866) 509-7199.