The Evolution of Fintech

An image of hands operating a calculator with financial charts and graphs in the foreground and background. This is intended to represent the question: what is fintech?

When you check your bank balances online, schedule a vendor payment, or tap into the convenience of automated invoicing, you’re reaping the benefits of financial technology. These modern innovations to the financial system are more broadly known as “fintech.” But what exactly is “fintech” and how has it evolved?

What is fintech?

Fintech refers to the use of technology to provide financial services to consumers and businesses. These services are wide ranging — from trading cryptocurrency to authenticating electronic payments.

Innovations in the financial technology sector have created new revenue streams for business, promoted access to financial services for underserved populations, and made life easier for consumers. To understand just how much of the global financial system has been shaped by fintech, it is first important to learn how these technologies have evolved.

The History and Evolution of Fintech

While financial technology may seem like a new concept, the history of fintech is much longer and more complex than many people believe. It began with an ambitious idea to connect Europe and North America back in the 19th century. The technology needed to accomplish this task is rudimentary by modern standards, but it set the stage for centuries of innovation.

Rudimentary Financial Technology

The foundations of fintech began with early technological advancements allowing instantaneous communication over great distances. One of these advancements was the first transatlantic cable which was placed in 1858 and facilitated messages between Great Britain and the United States.

It wasn’t long before these communication technologies were adapted to conduct financial transactions. By 1915, the Federal Reserve had developed Fedwire – a national wire transfer system that still operates today. This system allowed consumers and banks to conduct financial transactions instantly. These early advancements laid the foundation for future technological development.

Financial Technology Expansion

While the first era of fintech focused on laying the groundwork, the next several decades brought consumers into the digital financial age. One of the advancements during this time came when Diner’s Club, Inc. released the first credit card in 1950. The first card was just a piece of cardboard, but it introduced a convenience that we still enjoy today.

The Automated Teller Machine [ATM] debuted in 1967 – marking another important milestone. This technology introduced the idea that consumers should have access to their money at any time, regardless of bank operating hours.

Consumer-first banking innovations continued through the 1980s when online banking platforms were created. As these technologies grew more advanced, digital alternatives to some banking functions were introduced – like PayPal which was released in 1998 to facilitate online payments.

Digital financial advances during this time were not confined to consumer banking services. There were also widespread digital transformations to the structure of the financial system. One of these was the National Association of Securities Dealers Automated Quotations [NASDAQ] – the first digital stock exchange – which began operations in 1971. The Society for Worldwide Interbank Financial Telecommunication [Swift] was established just two years later to provide an electronic communication system between global financial institutions. Both NASDAQ and Swift still operate today.

There were great strides in technology during the second age of fintech. The modern era has built upon these developments, leading to a host of new, more advanced technology.

Modern Financial Technology

Since the turn of the 21st century, fintech has expanded rapidly, connecting ever-evolving consumer expectations with new and improved financial infrastructure. This era has seen the evolution of technologies which make it simple for consumers to access their money anytime, anywhere.

There are many examples of fintech innovations during this era. Prosper was founded in 2005 as the first peer-to-peer lending platform in the United States. Bitcoin – the first cryptocurrency and pioneer of blockchain technology – launched in 2009. Venmo also debuted in 2009 and facilitates consumer-to-consumer payments. Additionally, Square introduced a wireless, mobile credit card reader in 2009 which allows businesses to easily accept credit card payments on the go.

Further fintech innovations, called Banking as a Service [BaaS], have allowed companies to leverage the fintech revolution to their own ends. This class of technologies allows businesses outside of the banking sector to offer traditional banking services.

While fintech innovation has steadily grown during the modern era, two crises propelled expansion and adoption at even greater rates – the Great Recession and the COVID-19 pandemic.

The Great Recession revealed holes in the banking system and fintech was integral in filling them. Additionally, the COVID-19 pandemic left many hesitant consumers with no choice but to adapt to the new technology. In fact, estimates show that consumers and businesses advanced 5 years in the adoption of digital technologies in a matter of about 8 weeks during the COVID-19 pandemic.

The Future of Fintech

The rapid expansion of fintech is expected to continue in the future. In fact, the fintech industry is predicted to reach $332.5 billion by 2028 – representing an astounding annual growth rate of 19.8%. This growth is creating new opportunities for businesses while helping them to operate more effectively.

Fintech vs traditional banking: What is the difference?

Traditional banking involves the essential functions of lending and safeguarding funds. Fintech is technology that aims to make these functions simpler – or, in some cases, replace them. 

Some fintech products work to help banks improve their offerings or customer service – like mobile banking apps. These apps have been adopted by the biggest names in the banking sector to provide easy access to banking services.

Other fintech products compete with bank services – like peer-to-peer lending platforms. These platforms offer an alternative for individuals to borrow from one another rather than a bank.

While fintech products vary widely in their function and purpose, all fintech platforms share a common goal – to improve the financial services industry. These technologies already provide significant benefits for businesses as well as consumers and continue to evolve to meet changing needs.  

Fintech Helps Businesses and Consumers

Fintech has advanced into several financial service sectors, including payments, lending, investing, insurance, and real estate. Common fintech startups can range from digital wallets to lending platforms. In the past decade, several companies have taken these technologies into the mainstream. These include:

  • Stripe – Payment processing for online retailers
  • Klarna – Small purchase financing for consumers
  • Chime – Digital banking alternative
  • Ripple – International payments and cryptocurrency
  • The American Deposit Management Co. [ADM] – Business Cash Management

These are just a few examples of companies that are changing the landscape of finance with their innovative services. As fintech advances, expect more companies like these to become household names.

What types of fintech services are available today?

Like other types of technology, there is a wide variety of fintech providers who offer unique services to differing customer bases. Fintech services come in many different forms, but they generally fall into three main categories: business-to-business, business-to-consumer, and consumer-to-consumer.

1. Business-to-business (B2B) fintech services

B2B tools are designed to help businesses work better together or to help businesses serve each other in a more efficient way. This technology is disrupting many different sectors, like cash management.

For example, our company, ADM, has developed a proprietary deposit management service using a concept we call Marketplace Banking™. This service gives businesses access to unlimited deposit protection, nationally competitive returns, and liquidity to meet their needs.

2. Business-to-consumer (B2C) fintech services. 

B2C fintech is designed to help businesses provide expanded services to consumers and increase their bottom lines. This type of fintech has been disrupting banking and other B2C industries for years and is expected to continue.

Great examples of this type of technology are online banks, such as Ally, and even online banking portals offered by traditional brick-and-mortar banks. Technologies like PayPal and Robinhood can fall into this category as well.

3. Consumer-to-consumer (C2C) fintech services.

C2C services are designed to help consumers interact with each other. Some C2C fintech providers can replace traditional banking functions with peer-to-peer alternatives. Technologies like this are changing how consumers manage their finances by reducing their dependency on physical cash.

One of the best examples of these services 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 often with no charge.

Each category of fintech can help businesses in a different way. Even consumer-to-consumer technology has helped certain businesses by allowing customers more flexibility to pool their cash for a large purchase. The most wide-ranging benefits of fintech are in the business-to-business category. Specifically, the B2B technologies that help companies of all sizes to effectively manage their cash.

Fintech helps businesses manage cash more efficiently.

In recent years, fintech has opened the door for non-bank service providers to add value to the banking process. This subsection of B2B fintech helps companies manage their cash efficiently.

Fintech-powered deposit management services help companies access full government protection and competitive returns for reserve cash. Additionally, fintech has revolutionized business escrow services to help companies reduce risk in large transactions. These innovative solutions make business cash management more streamlined, secure, and efficient.

In the modern world, technology is no longer a nice-to-have – it’s a must. Which is why businesses should pay close attention to developments in the fintech industry and take advantage of the benefits of this new technology.

Fintech is at the heart of ADM

At ADM, we have developed proprietary fintech to streamline business cash management. Our technology helps firms maximize returns, ensure all funds are covered by FDIC / NCUA insurance, and create a liquidity plan to match their needs. Our fintech also powers a unique business escrow service that provides the ultimate protection for escrow cash.

When businesses work with ADM, they get the latest technology and a financial partner they can trust. Our team is our secret sauce, and you’ll understand that when you work with us.

To learn more about fintech and how ADM helps businesses with all their cash management needs, contact one of our friendly associates today.


*American Deposit Management Co. is not an FDIC/NCUA-insured institution. FDIC/NCUA deposit coverage only protects against the failure of an FDIC/NCUA-insured depository institution.

Tags: , ,