Fintech is literally an abbreviation for Financial Technology. It has become a powerful driver of the innovations in the world of finance and has potential to transform the financial services. As many other examples of generic terms, it might have different meanings depending on the context. Fintech may refer to start-ups or established firms that operate in the financial sector and firms that have business models based on innovative technologies. However, the term fintech may also refer to the technologies themselves, no matter whether new firms are applying them or traditional market participants, as for example banks that are exploring their potential.
An example of formal definition of the fintech might be the definition provided by the Financial Stability Board: “a technologically enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services”.
Technology itself is facilitating the unbundling of many products and/or services that have traditionally been offered by the banks or other financial institutions. Let us provide some example. There are new types of payment institutions – payment initiation service providers that offer new ways of payment. Also, there are equity or lending crowdfunding platforms, which may become alternative source of financing to firms and/or consumers. Robo-advisors might offer benefits for small investors, providing automatic portfolio management solutions. E-commerce aggregators become popular distributors of different type of financial services and/or news. Firms exploiting big data analysis could provide new credit scoring processes as support of the lending function of traditional lenders.
The pace of adoption of financial technology has dramatically increased, meaning that their impact on the market structure of the traditional financial services could be more significant and quick than in the past.
Fintech facilitates access to financial services making them more convenient for users. It may also increase the operational efficiency of financial firms, and can stimulate competition and benefits for consumers by lowering barriers for entry of new market players. However, for these benefits to happen, the key condition is to develop and maintain trust in the services, to step up all the efforts for ensuring integrity and resilience of IT systems, to provide satisfactory data protection and to enable open, fair and transparent markets. (back | back to Q&As)
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