Fintech (Financial Technology)

Innovative technologies that enhance and automate financial services

Author: Almat Orakbay
Almat Orakbay
Almat Orakbay

Almat currently works as a Financial Advisory Services (Business Valuation) Consultant 2 at Deloitte Kazakhstan, where he works with clients across multiple industries. Prior to joining Deloitte, Almat spent 9 months as an Audit Assistant 1 for KPMG Caucasus and Central Asia, where he focused on the asset management and banking services industries.

Almat has a Bachelor of Finance from KIMEP University.

Reviewed By: Patrick Curtis
Patrick Curtis
Patrick Curtis
Private Equity | Investment Banking

Prior to becoming our CEO & Founder at Wall Street Oasis, Patrick spent three years as a Private Equity Associate for Tailwind Capital in New York and two years as an Investment Banking Analyst at Rothschild.

Patrick has an MBA in Entrepreneurial Management from The Wharton School and a BA in Economics from Williams College.

Last Updated:December 21, 2023

What is Fintech (Financial technology)?

Fintech, short for Financial Technology, refers to innovative technologies that enhance and automate financial services.

It includes a wide range of applications, including:

  • Mobile payments
  • Peer-to-Peer lending
  • Blockchain
  • Robo-Advisors

Fintech solutions aim to streamline processes, improve accessibility, and offer individuals and businesses more efficient and convenient financial services.

Ernst & Young's Global FinTech Adoption Index shows that the global adoption rate is more than two-thirds or 64%. According to that report, 75% of customers used money transfer and payment solutions last year.

According to Plaid's 2022 survey, 80% of consumers continued to use digital financial apps, showcasing the enduring momentum of fintech's growth during the pandemic. Half of Americans (48%) manage their finances daily through fintech, a rise from 42% in 2020 to 44% in 2021.

Key Takeaways

  • Fintech, short for Financial Technology, encompasses innovative technologies such as mobile payments, peer-to-peer lending, blockchain, and robo-advisors.
  • Fintech aims to automate and enhance financial services, catering to both individuals and businesses. It also simplifies financial services, making them more accessible and affordable.
  • Fintech faces challenges related to cybersecurity and data protection. While disruptive, it operates in a heavily regulated environment.

Understanding Fintech (Financial technology)

FinTech describes any business that uses technology and innovation to modify, improve, automate, disrupt, or create new financial services and experiences, departing from traditional methods. 

This emerging industry improves finance with the help of technology (mobile banking, blockchain). The leading players in this industry are startup companies, Big Tech firms, and established financial institutions.

When financial technology emerged, it included both back-office engineering for traditional financial institutions and consumer-oriented services, such as "Peer-to-Peer (P2P) Lending" and "Crypto Exchanges.

Banks use fintech for both purposes:

  • Back-end engineering
  • Customer-facing solutions

In addition, individual consumers use it for their daily tasks, such as

  • Tax filing
  • Stock investing
  • Pension planning
  • Transferring money

The industry is quite huge. KPMG Pulse Global reported that the overall investment in the sector in 2022 recorded $164.1B with 6,006 deals.


Check out the 2023 Forbes Fintech 50 companies list here.

A Brief History of Fintech Evolution

Financial technology has a long history, dating back to the 19th century with the invention of the telegraph, which transformed stock trading. Significant advancements, such as the development of credit cards in the 1950s, contributed to the evolution of fintech.

The automated teller machines (ATMs) designed in the 1960s and signature-verifying technologies were among the first innovations in the financial industry. 

All of that reduced the need to carry physical cash. Then, in 1998, PayPal was founded. PayPal represented the revolutionary way to send money and accept payments.

Financial institutions enjoyed high regulations for several years, which served as a barrier to new entrants. But, as time passed, new technology broke this barrier.

Today, many Silicon Valley startups disrupt and impose a threat on big banks. The revolutionary services are mobile payment apps, blockchain networks, and payment options in social media.

So, many financial institutions heavily invest in financial technology startups. For example, J.P. Morgan invested about $25 million in those startups. In addition, Capital One created its "banking cafes" to attract young customers.

In 2016, Citi created its "Citi Developer Hub," via which Citi invites outside programmers to test the Application Programming Interface (API)

Despite the recent pandemic crisis, this technology is greatly valued by the general public. Many banks offer COVID-19 support and services digitally. In addition, mobile applications and chatbots helped avoid long wait times for the call center.

How Does Fintech Work?

Simply put, it is about making financial services easier and more affordable to individuals and businesses. In addition, it tries to minimize the number of intermediaries to reduce the costs of transactions.

For example, Venmo and Cash App allow you to pay others directly to their accounts anytime. 

"Ok, but how does it affect me?" Good question. You may need to request your credit score and quickly send an international money transfer. Platforms such as Upstart help you order your credit score, while Wise (Ex. TransferWise) helps you to transfer money internationally.

Disruptive firms can also serve the unbanked population of the world. With the help of automation and artificial intelligence (AI), the need to meet with clients face-to-face has been reduced. 

For example, consumers can apply for a loan using Lending Club or a mortgage using the Better platform. Investors of the 21st century can use chatbots or even Robo-advisors like Betterment to get their work done instead of talking to an agent.

So, there is no correct answer to the question, "How does it affect me?" Instead, the answer depends on the following:

  • How many times are you using these services 
  • The level of depth of these services. 

fintech Trends

Traditional finance is under the threat of automation & digitization. It doesn't offer physical products (like laptops or furniture). It provides only financial services (intangible) and, thus, can be delivered via information technology (IT) systems. 

What was the last time you met a banker to transfer some funds to your friends via your card? Did you even call your banker? I guess now you see how financial services can be digitized. 

The industry has been developed at a faster pace and has the following trends in 2022.

Digital banking

Banking services became accessible via digital/mobile banking. Many people use mobile apps to deposit, send money, repay loans, and purchase insurance policies. As a result, this segment is projected to grow at an 11.5% compound annual growth rate (CAGR).

Blockchain technology

Blockchain technology is a decentralized and distributed digital ledger that records transactions across multiple computers, ensuring the data's security, transparency, and immutability.

This technology helps build high transparency to boost trust in the system. All crypto assets and currencies use this technology during issuance, transfer, and settlement.

As mentioned, blockchain technology helps customers conduct decentralized transactions without any third party. Moreover, developing advanced data encryption fuels the demand for blockchain technology.

Artificial intelligence (AI) and Machine Learning (ML)

AI and ML are the sources of scale for innovative firms. They can significantly reduce customer verification, increase fraud detection, and reduce the operational costs of the innovative firm. 

As a result, these technologies have become more accessible and will play a vital role in the industry's evolution.

For example, Robo-advisors give investors actionable advice based on investment opportunities, the needs of individual investors, and the potential risks, all with the help of AI.


One of the most popular AI technologies is Robotic Process Automation (RPA)

On the other hand, machine learning allows one to identify different patterns in big data quickly. Moreover, machines can learn from examples and apply their knowledge without human interaction. This is the primary driver of change in investment management.

Data Science and Big Data in Finance

The development of AI and ML made analyzing diverse data sources, including structured, semi-structured, and unstructured data (such as texts, images, spoken language, and spending habits), on a large scale accessible.

Big Data refers to the vast and varied volume of data collected from multiple sources, which these technologies can analyze effectively.

With this information, investment managers have more confidence in making certain decisions effectively. Data scientists analyze this data and apply programming or coding skills and modern techniques to identify specific patterns. 

The data scientists can also provide meaningful insights on relevant findings to specific teams within the organization and design the tools to improve the overall investment process.

However, the industry still has some risks and threats despite these trends. For example, Deloitte said that the reduction of interest rates and the economic roller-coaster during the coronavirus slowed down the expansion of the industry. 

So, not all assumptions were correct.

Fintech Regulation and Safety

According to Forbes, 68% of customers are willing to use financial services by non-financial or non-traditional institutions. However, even if customers perceive them as trustful, they are not regulated at the same level as traditional financial institutions. 

Cyber-Security & Hackers

The primary risk concern in this industry is cyber-security or the threat from hackers. However, the data security concern has led to stringent security requirements from the government. 

Hacking might bring financial loss and use customers' personal information in fraudulent activities. So, the firms might lose both money and reputation. As a result, several countries imposed strict rules to prevent those adversaries.

For example, the EU implemented General Data Protection Regulation (GDPR) data protection laws. All technology firms must obey these laws. In case of breaches, they will pay €20 million or 4% of their global turnover (in case of an undertaking). 

Also, financial institutions must abide by Payment Service Directive 2 (PSD2). They have to build a business model focusing on customers' privacy. 

Rapid Innovation

Some fintech firms adopt the philosophy of "Move fast and break things," which emphasizes rapid innovation, but it's important to note that not all fintech companies operate under this principle.

Furthermore, this approach, if not carefully managed, can create conflicts with the risk-averse nature of the financial industry and may potentially lead to legal challenges.

For example, Zenefits, a San Francisco-based insuretech firm, broke California's insurance laws. They allowed unlicensed brokers to sell and underwrite insurance products and policies. 

As a result, they paid $980,000 to the SEC and $7 million to California's Department of Insurance.

Regulation of emerging services

The other part of the problem is the regulation of emerging services. For example, an initial coin offering (ICO) is a new form of raising capital directly from investors. Unfortunately, it's still unregulated in most parts of the world; thus, there is plenty of room for fraud and scams.

Many scammers disguised their security tokens as utility tokens to avoid compliance costs and fees. Government regulators in Korea, Japan, and other countries implemented regulations to protect individual investors' rights and address this issue.

So, based on these issues, it is better to view the industry with a healthy dose of skepticism. Some solutions offered by this industry are overbought, oversold, and overvalued. Sure, the sector provides vast opportunities, but it also threatens the security of our data and money.


Wealthfront considers all the customers' interests and adjusts the portfolio according to the risk and return parameters. That way, customers can minimize manual intervention in their investments.

Fintech Innovations

There are several Fintech innovations in the finance sector. Some are:

Mobile Banking and Neobanks

Mobile and open banking is probably the core of Fintech. Consumers demand more convenience and accessible services on their smartphones. Today, it is not rare that every bank has a mobile banking app.

However, some banks went above and beyond. They become "Neo-banks" or digital-only banks. The main feature is that they don't have any physical branches, and thus their operational costs are low. 

All services, including checking, payments, savings, and loans, are on the mobile app. Examples of neo-banks are Chime, Simple, and Varo.

Cryptocurrency & Blockchain

Cryptocurrency mining and marketplaces do exist due to blockchain infrastructure. Likewise, cryptocurrency technology is developed because of blockchain. Cryptocurrency is another area, but enhancing practical solutions in the industry is crucial.

The most prominent blockchain companies include Gemini, Spring Labs, Circle, and cryptocurrency firms such as Coinbase and SALT.

Investment & Savings

The number of investing apps has exploded over the recent decade. Robinhood, Acorns, and Stash have broken the barriers to entry into the investing field. These firms apply different approaches to democratize investing and saving services.

The services bundle includes automated small-dollar investing methods (instant roundup deposits on purchases).

Machine Learning & Trading

The Holy Grail of the finance world is to predict the market direction. With the help of AI, many firms developed algorithms to spot patterns, risks, and trends. 

It helps consumers, banks, and companies to have a clear picture of the risk and return of a specific investment vehicle. The largest user of machine learning (ML) and artificial intelligence (AI) is Wealthfront. It offers low-cost wealth management services via Robo-advising.


Wealthfront considers all the customers' interests and adjusts the portfolio according to the risk and return parameters. That way, customers can minimize manual intervention in their investments.


Money transfer is the typical path for many innovations. Nowadays, "I will Venmo you" means "I will pay you later." Therefore, Venmo is one of the most prominent payment platforms. The other popular platforms include PayPal, Stripe, Square, and Zelle.


The prominent disruption in the lending field is an innovative way to assess the risks and approval for loans. As a result, millions and even billions can access loans and other debt services. 

The main feature is that firms use unstructured data of some customers, who usually have no or low credit scores. These consumers are mainly underserved and thus allow lending disruptors to get leadership in this market. 

Credit Karma, Tala, and Petal are leading companies in this segment.


Insurtech is another significant part of the industry. Many startups in this field cooperate with traditional insurance firms to automate business processes and expand coverage. 

For example, the insurtech startups created mobile car insurance and wearables for health insurance.

The largest firms include Oscar Health, PolicyGenius, and Root Insurance.

Users in fintech sector

There are four user categories in this industry:

  1. Business-to-Business (B2B) for banks
  2. Business-to-Business (B2B) for banks' clients
  3. Business-to-Customers (B2C) for small businesses
  4. Business-to-Customers (B2C) for consumers

The digitization, decentralization, data analytics, and mobile banking trends fuel the interaction of these four groups and provide opportunities for all of them. The younger generation is more familiar with mobile banking and terms like digitization and decentralization.

Companies primarily target Millennials due to their rising earnings potential and the expectation of significant inheritances in the future, making them a valuable market segment. As a result, this generation is the most talked about in the segment.

Firms mostly fail to address the needs of the older generation, like GenX or Baby Boomers. This is because these markets are too small compared to young customers, and firms are not interested in these small segments.

Business Costumers

Let's now talk about business customers. In the past, most startups would have to go to a bank to get a loan or startup capital for their ventures. 

Then, to accept the credit card payments, they had to have a relationship with the credit provider and install the infrastructure (landline-connected card reader). Mobile technology has solved all those problems for many small and medium enterprises (SMEs). 

All you need today is your smartphone and your client's smartphone. For example, you have an iPhone, and your client has an iPhone. Then, you can easily accept contactless payments with ApplePay and offer your customers "ApplePay Later." 

In other words, customers can pay in four equal payments (spread over six weeks), and for some services, the interest rate is zero. It's important to check the terms and conditions of the specific payment plan for accurate information on interest rates.


Remember that firms are legally responsible for their users' data.

Researched and authored by Almat Orakbay | LinkedIn

Reviewed and edited by Tanay Gehi | Linkedin

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