If you’ve ever checked your finances online, scheduled a vendor payment at your bank or tapped into the convenience of automated invoicing, you’ve used financial technology. These types of modern innovations to the financial system are more broadly 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 business — from buying and selling cryptocurrency, to authenticating electronic payments.
And, fintech is growing. The global fintech market is expected to approach $310 billion by the end of 2022. This represents an overall growth rate of 24.8% per year from 2018 and 2022.
That growth is creating new opportunities for businesses to manage their money more effectively. And, it’s bringing efficiency, simplicity and accuracy to complex and often cumbersome processes.
Fintech vs traditional banking: What is the difference?
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.
Fintech Helps Businesses and Consumers
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.
So far in 2020, the U.S. has experienced a rapid shift to digital, brought on by the COVID-19 pandemic. As evidence, recent data shows that consumers and businesses advanced 5 years in the adoption of digital technologies, in a matter of about 8 weeks.
What types of fintech services are available?
Fintech services generally fall into three main categories:
1. Business-to-business (B2B) fintech 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, like cash management.
For example, American Deposit Management Co. has developed a proprietary deposit management service that helps businesses extend FDIC insurance coverage for their cash deposits to just about any amount by spreading the funds throughout their network of community banks. They do this all with a single deposit and a single statement. Not only does this service provide the most protection and liquidity available for business cash reserves, but it also provides the most competitive rates of return.
2. Business-to-consumer (B2C) fintech 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 Robin Hood can fall into this category as well.
3. Consumer-to-consumer (C2C) fintech services.
This type of service is designed to help consumers interact with each other. 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 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.
Fintech can help your business manage cash more efficiently.
While fintech is sometimes seen as a disruptor to traditional banking, these banks are leveraging it themselves to better serve consumers and other businesses. In fact, fintech has opened the door for non-bank service providers to add additional value to the banking process. From deposit management to business escrow, these 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.
Fintech is at the heart of ADM
At ADM, we have proprietary financial 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.