If you’ve ever checked your company’s finances from your phone, scheduled a vendor payment online or tapped into the convenience of automated invoicing, you’ve used financial technology, better known as “fintech”. But what exactly is “fintech”?
What is fintech?
Fintech refers to the use of advanced technology to provide financial services to consumers and corporations — from buying and selling cryptocurrency, to authenticating electronic payments.
And, fintech is growing: Investment in fintech doubled in 2018, exceeding $111 billion worldwide. Throughout the first half of 2019, fintech investment in the U.S. increased another 60%. In addition, 13 companies on the 2020 edition of the ‘Fintech 50’ had values in excess of $2 billion, with 19 new companies making the list this year.
That growth is creating new opportunities for how businesses manage their money. And, it’s bringing efficiency, simplicity and accuracy to complex and often cumbersome processes.
What is the difference between fintech and traditional banking?
While traditional banks are generally focused on the interests of their shareholders, fintech promotes the needs of its end user. This raises the bar for traditional banks, but it also provides opportunities for banks themselves to leverage this valuable technology.
By investing in startups or partnering with them to provide innovative products and services to customers, traditional banks are leveraging fintech to provide better services. According to a Business Insider survey, 89% of survey respondents said they used mobile banking. When surveying millennials, that number jumped to a whopping 97%. This is just one example of how fintech is disrupting traditional banking.
What are the most popular types of fintech?
Fintech has made significant inroads into many financial service sectors, including payments, lending, investment, insurance and real estate. Common fintech startups can range from digital wallets to lending platforms, but recently companies such as American Deposit Management Co have taken this a step further.
As of early 2019, the most popular fintech services in the United States offered payment processing for online retailers (Stripe, valued at $22.5 billion), cryptocurrency exchange services (Coinbase, valued at $8 billion), personal finance services such as credit scores (Credit Karma, valued at $4 billion) and loan refinancing (SoFi, valued at $4.4 billion). Fintech that manages investments and trades is another rapidly growing sector. Robinhood, the major player in that space, has seen its value climb from $5.6 billion in 2018 to $7.6 billion as of their latest round of funding in 2019.
What types of fintech services are available?
Fintech services generally fall into three main categories:
- Business-to-business (B2B) services. These tools are designed to help businesses work better together or to help businesses serve each other in a more efficient way. And this technology is disrupting many different sectors. For example, American Deposit Management Co. has developed a proprietary deposit management service that helps businesses get FDIC insurance coverage for over $75M in deposits by spreading the funds between many different banks. They do this all with a single deposit and a single statement. Not only does this provide the maximum protection and liquidity for these funds, but it also provides the most competitive rates of return available.
- Business-to-consumer (B2C) services. These are tools designed to help businesses provide better services to consumers and / or increase their bottom lines. Great examples of this type of technology are online banks, such as Ally, and even your online banking portal. These technologies have been disrupting banking and other B2C industries for years. Technologies like PayPal and Coinbase can sometimes fall into this category as well.
- Consumer-to-consumer (C2C) services. This type of service is designed to help consumers interact with each other. The best example of this is Venmo. This technology has revolutionized the way people exchange money. Rather than trading cash or checks, consumers can send money directly to each other, instantly and with no charge. Even Google has made inroads in this space by allowing Gmail users to attach cash directly to emails. Technologies like this are changing how we manage our finances by reducing our dependency on physical cash.
How can fintech help your business?
So, what’s the significance of fintech in 2020? While fintech might be seen as a disruptor to traditional banking, these banks are actually using it to better serve other businesses and consumers. In fact, fintech has opened the door for non-bank service providers to add additional value to the banking process. From deposit management to bond proceeds management, digital services can make your business processes more streamlined, secure and efficient.
And that’s just the beginning. In our modern world, technology is no longer a nice-to-have – it’s a must. That’s why technology lies at the core of everything we do.
At ADM, we have proprietary technology to manage your business deposits and help you maximize your returns while securing FDIC insurance coverage for all your cash. Another way we’ve leveraged this technology is by creating a business escrow service that earns the most competitive returns available for your protected cash. We’ve also utilized our fintech to automate the vendor payments process, which takes the stress out of project management.Want to learn more about what fintech and ADM can do for you and your business? Contact one of our friendly associates today.