In the financial industry, the term “FinTech” is becoming increasingly common. The new development of young, innovative start-ups seems to be revolutionizing the financial sector and overtaking conventional services in this area. But what exactly is it about, and what is this young approach based on?
What is FinTech?
“FinTech” is the short form for “Financial Technology” and translates to financial technology. Financial technology consists of financial services and technology. As suggested, the term originated from the financial services industry. Financial Technology is a financial industry that uses technology to improve financial activities.
As a collective term, “FinTech” can be divided into the areas of “insurtech” and “wealthtech.”
“Insurtech” includes modern technologies in the insurance industry. The term is composed of insurance and technology in English. Blockchain is, among other things, a part of insurance technology, which we will discuss in more detail in this article.
“Wealthtech,” on the other hand, is the subgroup of FinTech, which focuses on asset management. Innovations and new technologies, such as Robo Advisor platforms, belong to this area of FinTech.
FinTechs are companies that offer innovative, technology-based and “finance”-related application systems – mostly these are young startups. In doing so, they work particularly customer-oriented and promise to improve financial services with modern technology and thus expand the financial industry.
Many different technology-based business models are included. Such companies often use fintech software development services to improve their enterprises.
Types of FinTech
1. Peer-to-peer lending
In peer-to-peer lending, P2P for short, private individuals can lend to each other via special P2P platforms. They serve as the sole marketplace between borrowers and donors and make it possible to invest in a variety of loans outside banks and secure interest rates.
This type of FinTech offers the advantage that the bureaucratic effort and high fees of a bank are eliminated. In addition, private individuals who would not receive a loan from their bank in a conventional way still will receive a loan.
2. Crowdfunding
Crowdfunding is the solution to realize projects in the fastest possible time and also shows how much can be achieved in the community. In crowdfunding, there is a project initiator who wants to finance a particular project but does not yet have enough financial resources available for it.
For this reason, it addresses the public via a crowdfunding platform in order to reach a large number of interested parties via the Internet who support him in his project. For this purpose, the project starter first presents the project, and mentions the amount of the financing objective, the planned financing period, and corresponding consideration for the investors.
During the financing period, investors can then donate fixed amounts themselves.
3. Blockchain
Blockchain is a financial services company for cryptocurrencies, such as Bitcoin. It is a database that is not centrally located on one computer but is distributed over several computers.
Transactions are logged chronologically and mapped unchanged. Through complete and unchanged data records, ownership relationships can be secured more directly and efficiently than before.
The data sets are presented as individual blocks, which are continuously continued and expanded chronologically like a chain so that directories are always safe and up-to-date.
4. Digital wallet
Digital wallets or cyberwallets are tools for online payments, usually in the form of an app. These allow users to store credit, which can be used to pay for goods and services on the Internet.
The digital wallets store digital versions of credit and debit cards so that users do not have to enter their card information or have their cards with them when paying.
This type of FinTech significantly speeds up payment transactions – whether money transfers or online orders.
Online payments can be made from anywhere without the real debit or credit card being required.
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