Fintech Banking 101

Society is in a technological golden age where everything around us is getting smarter and faster. We carry powerful computers in our pockets, we have access to a global network of information and people via the internet, and we can get in a car and tell it to take us to our destination without ever having to touch the steering wheel or the pedals. So its no wonder the financial services industry is also disrupted by innovation.

Understanding the Basics of Fintech

Financial technology, commonly termed fintech, is the convergance of traditional finance, like banking, with forward thinking technology.

Open Banking is an umbrella term used to describe new technologies that aim to improve and automate the delivery and use of financial services. Financial technology companies consist of startups and established financial institutions looking to enhance their offering by leveraging digital tools.

While Open Banking covers a wide range of applications, from retail banking to insurance, the term is most often used about companies, much like us here at Evolve, that provide digital solutions for traditional financial services, such as payments, personal finance, accounts, and lending.

There are three major recent manifestations of fintech:

  1. There’s the technology underpinning the financial services industry, such as cloud-based ledgering and APIs.
  2. There’s the drive for borderless and faster payments.
  3. Increase of companies and startups operating in the space, such as peer-to-peer lending platforms, Robo-advisors, and digital banks.

Behind the push to innovate financial technology is a desire to improve the customer experience by making financial services more accessible, efficient, and user-friendly; it’s also contributing to significant changes in traditional financial institutions’ operations. Fintech is not only changing the way end users bank but also how banks do business. Let’s delve into what precisely fintech banking is and how it’s different from digital banking.

What Is Fintech Banking?

Fintech banking is essentially utilizing technology (like APIs) to enable banking services. This can include anything from mobile apps that allow you to check your account balance and transfer money on the go to more sophisticated applications that use artificial intelligence and machine learning to provide financial advice. At Evolve, we specialize in business banking and lending solutions, which means we provide the software and tools that power the financial operations of startups and innovative small businesses serving unique customer bases.

Fintech banking is not just about providing a better user experience, but it is undoubtedly a crucial part. Fintech banking is also about rethinking the very foundation of banking, from how we store money and make payments to how we borrow and invest.

The goal of fintech banking is to make the financial system more efficient by using technology to automate processes, reduce costs, and speed up transactions. In other words, fintech banking is using technology to make banking better.

However, it’s important to note that fintech goes beyond creating new financial products and services but also encompasses using technology to improve existing financial products and services. For example, the introduction of mobile point-of-sale devices has made it easier for small businesses to accept credit and debit card payments. 

What Are the Benefits of Fintech Banking for End Users?

There are many benefits of fintech banking for both consumers and businesses. For consumers, fintech banking can make it easier to manage their finances and save money. For businesses, fintech banking can help them to save time and money on financial tasks, such as bookkeeping, invoicing, and tax compliance.

Some of the specific benefits of fintech banking include:

  • Improved access to banking services: Fintech banking can make it easier for people to open bank accounts, get loans, and access other financial services. This is especially beneficial for people who live in rural areas or don’t have access to traditional banking relationships.
  • Greater financial inclusion: Fintech banking can help to increase financial inclusion by providing access to financial services for people who are underserved by the traditional banking system.
  • Faster and cheaper transactions: Fintech banking can speed up transactions and reduce the costs associated with making payments.
  • Enhanced security: Fintech banking can provide enhanced protection through the use of biometrics, encryption, and other security technologies.
  • Better financial management: Fintech banking can help people better manage their finances by using budgeting tools, financial planning tools, and other money management tools.

The Difference Between Digital Banking and Fintech

More and more traditional banks are embracing the digital revolution. The era of walking into a brick-and-mortar bank and waiting in line to speak to a teller is rapidly decreasing. In its place is digital banking, which allows people to bank online or through a mobile app.

While digital banking is undoubtedly convenient, it’s important to note that it’s not the same as fintech banking. Digital banking uses technology like websites and mobile apps to provide banking services from banks, while fintech banking is the enablement of financial services and transaction methods for a variety of financial and non-financial businesses.

For example, a traditional bank may offer digital services that allow customers to check their balances, transfer money, and pay bills online. But a fintech bank would enable accounts and transaction methods for another business. In fact, banks, like Evolve, can provide both digital banking for customers and have BaaS solutions. 

Similarly, a traditional bank may use mobile apps and other technologies to make it easier for customers to bank on the go. But a fintech bank would provide these same technologies to other businesses to create innovative and tailored features, such as the ability to split a bill with a friend or to transfer money to a person in another country instantly.

Key Parts of the Fintech Ecosystem

There are three critical parts to the fintech ecosystem: end users, fintechs, and banks. Depending on their unique needs and problems, fintech can be used to create a variety of solutions. Within the banking sector specifically, there has been a lot of talk about Open Banking, Banking as a Service (BaaS), and APIs in recent years.

Open banking includes the practice of securely sharing financial data between banks and third-party service providers, such as fintech apps. For Open Banking to work, companies need secure technology, like APIs (Application Programming Interfaces), to share the data securely.

Banking as a Service (BaaS) is the products financial institutions offer to non-financial and financial companies to enable banking services.  It essentially allows businesses to outsource their banking needs, such as payments, lending, accounts, and compliance, from a bank without obtaining a federal banking charter. This method enables companies to focus on their core competencies and leave the banking nuances to the experts.

APIs, on the other hand, are software that allows different applications to communicate with each other. For example, when you use a mobile app to check your bank balance, the app may be communicating with the bank’s servers via an API.

Fintech companies need to deeply understand the needs of each essential part of the ecosystem to create solutions tailored to their specific needs. At Evolve, we focus on helping businesses navigate the complex world of fintech to take advantage of its many opportunities.