What is fintech?

Fintech refers to the use of technology in financial services banking to support and enable services and to drive growth. The term was once simply shorthand for financial technology, but in the post-2008 world, it began to take on a whole new meaning.

After the financial crisis, the world saw the emergence of thousands of start-up technology firms who realised that customer loyalty to the old financial services were shattered and that new integrated business models were the future.

Traditional banks then had millions of customers demanding new service levels and who, for the first time, were willing to take their business elsewhere.

Spurred by new entrants attacking every part of their business from payments (Paypal) to accounts (Metro Bank, Atom Bank) traditional high street banks were forced to act.

Accenture’s group chief executive Richard Lumb said: “The drive for fintech innovation is spreading well beyond traditional tech hubs.”

How does fintech affect banks?

Fintech firms innovate by using cloud, mobile and data analytics platforms as elements of multi-level engagement with customers, but the technology is not about attacking or replacing major banks. While it is a disruptor, the banks themselves have also invested in Fintech companies.

Instead of being conservative technology users, big banks realised they must provide online and mobile banking across every product and build new customer engagement strategies to provide customers with end-to-end services from accounts, to mortgages, wealth management and insurance.

Fintech began in payments and personal finance and then made advances in corporate banking. Global investment in Fintech grew 67% to $5.3bn between January and March 2016, compared to the corresponding period a year earlier, according to a report released by Accenture.

Since then, the sector has continued to grow rapidly and seek new innovations.

Is crypto a part of Fintech?

Cryptocurrencies are a relatively recent development in the Fintech space. They use blockchain technology, which is based on decentralised ledgers that permanently log transactions, to make financial transactions more transparently.

Despite existing for more than a decade, Crypto has become a major disruptor over the last few years. In 2021, the market cap of digital currencies overtook the combined value of the top 100 Fintech companies by more than $620bn.

While crypto is now a fixture in Fintech, it is also a volatile market. Between January 2020 and November 2021, the Ethereum cryptocurrency ballooned from $134 in value to $4,644 before reaching a low of £993 in June 2022.

Despite this, crypto continues to integrate into wider Fintech enterprises, with companies such as PayPal and Mastercard helping to facilitate transactions.