FinTech Fundamentals: What is FinTech and How Does it Work?

What is FinTech?

Simply put, FinTech means financial technology. Although it originated from the finance industry, its importance and use cuts across all industries today. FinTech refers to the use of modern technological solutions and methods in managing finance and payments. It encompasses everything about eWallets, neobanks, challenger banks, online loans, wire transfers, and cryptocurrencies.

Furthermore, any company that applies contemporary technology to offer automated or enhanced financial products and services to their customers is called a FinTech company. The largest FinTech companies today are the likes of Mastercard, Visa, PayPal, Coinbase, Revolut, N26, and Paysafe Group, to name but a few.

Types of FinTech Companies

From startups to large companies, there are numerous FinTech businesses, projects, and brands. Notwithstanding, they can be grouped into the following types:

eWallets

From kids to digital nomads, there is an e-wallet for everyone, thanks to FinTech companies for developing them.  Electronic wallets (eWallets or e-wallets) are designed for convenient online payments and secure storage of financial information, that is why they are also called digital wallets. Essentially, they are desktop and mobile software applications through which FinTech companies provide people with personal accounts, business accounts, multi-currency accounts, cryptocurrency trading accounts,money transfer services, international payment services, personal budgeting assistance, payment cards, and loans. A few examples of the various eWallets on the market today are: 

Paysend (for international money transfers)

Monese (for a personal account) 

Gimi (for children’s savings) 

PayPal (for merchants) 

ecoPayz (for online gaming and a multicurrency account)

TransferGo (for global money transfer)

Neobanks

Here, we refer to new digital-only FinTech companies that render “better” banking products and services than traditional banks. Unlike conventional banks that use physical locations and render a spectrum of services, Neobanks render all their financial services online instead of using physical branches and offices. They leverage artificial intelligence and diverse technological tools to deliver fast, affordable, secure, and specialised services to millions of people at their various locations worldwide. Examples of neobanks are:

Atom Bank

Chime

Starling Bank

N26

Challenger banks

All neobanks are challenger banks but not all challenger banks are neobanks. In other words, there are digital-only challenger banks (neobanks) and others that operate using a few brick-and-mortar offices like traditional banks but offer innovative and customised products and services that are new to conventional banks. In that way, these FinTech companies create healthy competition in the finance industry and make banking more appealing to people. For instance, Climate First Bank is a challenger bank in Saint Petersburg (Florida, U.S.A.) that offers green loans and other personal/commercial banking services to support environmentally sustainable projects. Other examples of challenger banks are:

Revolut

Monzo

thinkmoney

Cryptocurrency exchanges

Since the introduction of blockchain technology which brought about cryptocurrency mining and crypto exchanges, many FinTech companies have sprung up in the global financial services industry. While the market is expected to grow, such FinTech companies have become the hub for modern-day investments. Millions of people can now trade in cryptocurrencies like Bitcoin, Ethereum, Stellar, Dogecoin, and others: buying/selling crypto and making fiat-to-crypto as well as crypto-to-crypto exchanges safely, quickly, and easily.  

Find some examples of the leading cryptocurrency exchanges below:

Binance

Coinbase

Kraken

Wire payment systems

Money transfer services providers are a category of the FinTech establishments that have transformed how we wire money domestically and internationally today. Buyers and sellers in separate countries can now make wholesale and retail payments conveniently using apps on their smartphones or web-based software on their computers. Some of the best apps to send money to people overseas are: 

TransferGo

Paysend

XE 

WorldRemit

IFX Payments

TorFx 

Wise

The above examples are the best because they are faster, safer, cheaper, and more advantageous than bank transfers. Besides, they offer the best exchange rates today.

Online credits

Online credit companies have made it possible for people to borrow money through a simpler and faster procedure than that of traditional banks and conventional credit unions. They provide loans online through automated systems that expedite approval. Thus, the creditworthiness of borrowers is assessed using advanced software applications. Similarly, the underwriting process has been automated so that these businesses can provide credit facilities to many borrowers faster than banks. Furthermore, these innovative FinTech companies have promoted an instalment loan concept called Buy Now, Pay Later (BNPL). With BNPL loans and apps, you can purchase items online with or without any part payment and pay off the balance over time (say through weekly, fortnightly, or monthly instalments). An example is “PayPal Pay in 4,” which allows you to pay for purchases between US$30-US$1500 in four instalments (every two weeks) without interest. 

Some of the best online credit providers are:

Capital One 

Klarna

FinTech Trends and Sustainable Finance

Goal 17 of the 2030 Sustainable Development Goals (SDGs) calls for global partnerships toward the achievement of all the goals.  Accordingly, there are FinTech companies that offer products and services designed for individuals and businesses who have projects that are ecologically friendly (eco-friendly) and promote sustainable development. Some even run their own projects focused on achieving some of the SDGs. These sustainable FinTech businesses offer eco-friendly products, sustainable mortgages, loans for green personal or business projects, cashback to plant trees, and a lot more. For example, Climate First Bank provides green loans for the installation of solar rooftop systems at home.

Other examples are: 

Bunq 

Bunq provides virtual cards which are pro-environmental.

Starling Bank 

Starling Bank issues recyclable plastic debit cards and plants trees to decrease deforestation.

FinTech Supply Chain and New Methods of Logistics

At present, there are many tools from the FinTech industry for a more efficient supply chain and logistics. Lumper payments have been made more efficient, thanks to companies like Capstone Logistics which have streamlined the process and cut down the administrative and operational hassle linked with making such payments. Also, the visibility of logistics has been increased by mobile logistics management apps like LogiScope. This app allows logistics teams to have timely access to all cloud-stored logistics data in one interface, thereby helping them to make informed decisions. Furthermore, there are FinTech apps that help truck drivers to make faster deliveries and receive their payments in time. An example is CloudTrucks, which helps truck drivers make the best use of their time on the road through its features for efficient scheduling and load-booking.

FinTech and Security: Are FinTech Companies Safe?

Not every FinTech company is safe, hence you should only register with trusted companies like those listed on our website. Nonetheless, the financial technology companies we have mentioned in this article take data security very seriously to maintain their customers’ trust and demonstrate a competitive edge over other competitors and traditional banks. They comply with anti-money laundering (AML) rules and apply the most advanced technologies (including two-step authentication) for keeping their customer’s data safe and secure against cyberattacks, data breaches, and identity theft. Some of them also provide cybersecurity and payment security tips to their customers, for example, Paysafecard. 

Conclusion

We cannot imagine the future of the global financial services industry without financial technology. FinTech has greatly transformed how we buy, sell, wire money, exchange currencies, and even get loans. In addition, advancements in the application of financial technology have aided the growth of challenger banks which now provide cheaper, faster, customised, and more convenient innovative products and services to millions of people worldwide. Irrespective of your profession, with FinTech, there is a digital wallet for you. Explore and experience the best FinTech tools on AskWallet!