If you’re in the market to work with, invest in, or excel in the finance and technology industry (or “fintech”), this post will give you a solid understanding of what fintech is — and why it’s being given so much attention.
In short, fintech is concentrated innovation in the industry of finance. It’s all about new technologies aimed at improving financial services for customers today and preparing for emerging trends tomorrow.
What is Fintech?
Defining “fintech” can be challenging due to its diverse sub-industries and applications. Similar to how the term “startup” has changed over time, the definition of fintech has also taken on a broader meaning.
Since its inception, fintech has been an area in which startups have had to tread lightly due to the complexities of working with banks. It’s no secret that banks are notoriously conservative regarding investment and innovation, so getting a bank involved in your product is typically an uphill struggle.
At the same time, fintech has resulted in some startups gaining substantial funding and traction. For this reason, fintech can be a very profitable industry for startups with the right balance of innovation and execution.
There’s a lot more to fintech than just banks, however. Now dozens of new verticals have been developed around fintech innovations — including mobile payments, cybersecurity, healthcare, and investing.
Because fintech is no longer just limited to banks and startups, it has shifted to helping investors get better returns while protecting themselves against risks during that process. The goal is to provide access to underserved markets, create new tools and products for customers, help create a more diverse set of financial products, and provide investors with more options.
These are all things fintech startups are trying to accomplish. The best way to do that is through building new technologies.
Why is Fintech Gaining so Much Attention?
The current state of the financial system worldwide is leading to uncertainty, confusion, and even anger. People are unhappy with their banks, they’re unhappy with their investment firms, and they’re not happy with their politicians — all of which are interrelated.
Despite a growing wealth gap (narrowing), the financial system has been largely ineffective in helping consumers get ahead economically. This is not unique to the United States. For example, there’s been a global rise in money being stolen from developing countries by organized international criminals.
The world has gone from a system of banks that create loans and invest in stocks to one where people are at the mercy of large financial institutions with little control over how their money is being spent. Understandably, people are angry about this.
For the system to be fixed, we need to know what’s causing the problems.
Additionally, people are demanding change at an unprecedented rate — but with a system that’s been around for hundreds of years, this is no small task.
The current state of the global financial system isn’t just because of issues with new technologies; it’s because of old habits that have been built over time — which can be hard to break. That’s why fintech has gained so much attention.
The core of fintech is around new technologies created to improve the financial services industry and protect investors. The aim is to make businesses run more smoothly and effectively, which, in turn, will help people become more wealthy and create a better economy.
Application of Machine Learning in Finance
Machine learning is applied by financial organizations in several areas, including fraud detection and anti-money laundering. Machine learning algorithms can be used for faster, more accurate fraud detection, a huge issue for banks today. Some financial institutions are already using models that predict fraud based on analyzing past cases that include simple predictive models and complex supervised machine learning.
Another application of machine learning is portfolio management, which is used to adjust investments or choose new ones.
Loan servicing software can be enhanced through the use of machine learning. It is used here to optimize debt collections, identify at-risk accounts, and evaluate borrower creditworthiness.
In risk management, machine learning is used by financial institutions in everything from anti-money laundering and counter-terrorism financing to advanced analytics for trading operations.
Benefits of Fintech for Entrepreneurs
The benefits of working in fintech extend beyond just the financial return — other ways working in the industry can benefit your life.
Depending on your role, the opportunities available to you in the fintech industry can be anywhere from just a few hours a week up to full-time.
Fintech can be challenging, but with a dedicated mindset and willingness to learn new skills, it can also be very rewarding. It’s important to note that there is no right or wrong way to work in fintech. You should find your path — one that’s best suited for you.
“Fintech” is an industry led by passion and hard work. Technology and capabilities are constantly changing and evolving, which can be exciting. It can offer potential investors (both large and small) the opportunity to get in on the ground floor of a new yet growing industry.