Fintech is the contraction of the words ‘finance’ and ‘technology.’ The term, known in Italian as tecnofinanza or tecnologia finanziaria, refers to the sector of the financial industry that offers its services through new digital technologies. Technological innovation makes financial innovation possible, which can translate into new business models, processes, or products, as well as new market players. The use of technology is a necessary element to enable financial innovation.
Fintech is not limited to the banking sector alone, but is made up of various actors and protagonists. Expanded competition, open banking, APIs, robo-advisors, and process automation are all pieces of a rich and diverse mosaic. There is no globally recognized definition of the word ‘Fintech,’ but the Fintech & Insurtech Observatory considers all digital innovations in the financial sector to be Fintech.
What exactly does a fintech do? Generally, it develops innovative solutions to simplify access to and management of financial services.
One of the main characteristics of fintech is the ability to leverage technology to offer more efficient and convenient financial services, improving user experience and reducing operational costs for businesses.
Among the advantages offered by fintech, we first find greater accessibility to financial services. Additionally, the digitization of processes makes financial transactions and operations faster, reducing time and costs.
Moreover, fintech solutions are able to provide a personalized experience to users, based on their specific needs and financial habits. This allows for the creation of longer-lasting and trusting relationships with customers, increasing loyalty and satisfaction.
The main areas of intervention of fintech are numerous and concern various aspects of the financial sector. In particular, the main areas of intervention are:
Loans: Fintech companies offer innovative solutions to simplify access to credit, even for people who would have had difficulty obtaining financing in the past. Thanks to technology, fintech companies can assess credit risk more accurately, using data analysis techniques and machine learning. In this way, fintech companies can offer loans at more competitive interest rates than traditional banks.
Investments: Fintech companies offer solutions to simplify access to investments, through online platforms that allow for easy and intuitive investment in stocks, bonds, mutual funds, and other financial instruments. Thanks to technology, fintech companies are able to provide personalized financial advice services based on the needs and investment habits of users.
Payments: Fintech companies offer solutions to simplify payments, both online and offline. These include digital payment platforms that allow for secure and fast payments through mobile devices, such as smartphones and tablets. Thanks to technology, fintech companies are able to offer innovative payment solutions, such as contactless payments or payments through biometrics.
Insurance: Fintech companies also offer innovative solutions in the insurance sector, through the creation of personalized policies and the monitoring of accident trends through the use of IoT devices. Thanks to technology, fintech companies are able to assess the risk of accidents more accurately and offer policies at more competitive prices than traditional insurance companies.
The 2022 and 2023 trends related to the nuances of the sectors in which fintech is most active are:
Money management: This application involves managing money efficiently through the use of mobile applications or web platforms that allow users to view and analyze their expenses, plan a budget, and manage investments.
Wealth and asset management: These applications allow for effective management of assets and investments through the management of personalized investment portfolios, financial planning, and long-term investment management.
Capital marketing and trading: This application allows for the buying and selling of stocks, currencies, commodities, and other financial instruments through online trading platforms. Investors can use these platforms to execute real-time transactions, monitor the market, and obtain financial information and analysis.
Peer-to-peer lending: This application allows users to obtain loans from other individuals or investors through online platforms. Instead of using traditional financial institutions, users can obtain financing at competitive interest rates and with flexible terms.
Equity or lending crowdfunding: These applications allow for fundraising for a project or cause through an online platform, where investors or supporters can contribute financially. In the case of equity crowdfunding, investors can become owners of a small part of the funded project or company.
Regulatory framework: Fintech applications in the regulatory sector allow companies to comply with regulations and compliance requirements through the use of monitoring, reporting, and identity verification solutions.
Security framework: Fintech applications in the security sector include authentication, encryption, transaction monitoring, and fraud prevention solutions that protect users and companies from the risk of cyberattacks and financial fraud.
Another important emerging trend is Embedded Finance [learn what embedded finance or embedded finance is], based on Banking-as-a-Service, which involves collaboration between a licensed financial institution and a fintech company. In this model, the financial institution offers its services and license to the fintech company, which takes care of customer interactions and user experience. When the intermediary’s financial products are integrated into the customer journey of non-financial actors, it is called Embedded Finance. Consumers are increasingly likely to accept financial service propositions from specialized players.
Regarding the technology used by fintech companies, the main ones are:
Machine learning: Thanks to the use of machine learning algorithms, fintech companies are able to analyze large amounts of data to provide personalized advice and evaluate credit risk more accurately.
Blockchain: Blockchain is a technology that allows for the creation of distributed digital ledgers, where transactions are protected by cryptography and cannot be altered. With blockchain, fintech companies can create secure platforms for payments and financial transactions.
Artificial intelligence: With the use of artificial intelligence algorithms, fintech companies are able to provide personalized financial advice and offer portfolio monitoring services.
Mobile banking: Mobile banking is a technology that allows for banking operations to be performed through mobile devices, such as smartphones and tablets. Thanks to mobile banking, fintech companies are able to offer digital payment services and access to their bank accounts in a simple and fast way.
Open banking: Open banking is a technology that allows for the secure sharing of banking data with other financial institutions, providing greater transparency and facilitating access to financial services. Thanks to open banking, fintech companies can create innovative solutions to simplify access to credit and investments.