Fintech (Financial Technology)

Refers to the business that uses technology and innovation to modify, improve, automate, or disrupt traditional financial services.

Think about this term. What comes to your mind? For most of you, it seems like a foreign word, right? What if I tell you that you encounter it in your everyday life?

Think about your pre-Covid life, when there was no social distancing. You probably must have used financial technology unconsciously at least every week.

For example, you have snapped and uploaded your photo to deposit your paycheck. You've saved an entertainment budget in the app "Mint." You may also have split the bill with your friend via Venmo. Later, you paid for some drinks at the bar with Apple Pay. 

It's late at night, and you ordered an Uber, where you paid with your credit card or even with a cryptocurrency like Bitcoin. This technology is an inseparable part of your daily life. 

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.

The financial innovation sector is too broad and ambiguous. Here is the breakdown of this industry.

Understanding the concept

FinTech describes any business that uses technology and innovation to modify, improve, automate, or disrupt traditional financial services. 

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 was referred to as the IT back-office of traditional financial institutions. As time passed, the term defined consumer-oriented services such as "Peer-to-Peer (P2P) Lending" and "Crypto Exchanges."

Banks use financial innovation for both purposes: back-end engineering and customer-facing solutions. In addition, individual consumers use it for their daily tasks, such as tax filing, stock investing, pension planning, and transferring money.

According to the 2020 Forbes Fintech 50 companies list, the hottest platforms on the market are:

  • Chime (digital banking services, its cards are issued by The Bancorp Bank/Stride Bank)
  • Affirm (instant issuance of loans)
  • Stripe (payment company with over $1 billion in investments from Sequoia Capital, Visa, etc.)

The industry is quite huge. KPMG Pulse Global reported that the overall investment in the sector increased from $930 million (in 2008) to $121 billion (in 2020). In the first half of 2021, 2456 deals were made, which amounted to $98 billion. These were record-high numbers since 2018.

$51.4 billion of these investments went to the Americas region, where the US alone had a $42.1 billion market share. The EMEA region accounted for $39.1 billion, and the Asia-Pacific region raised only $7.5 billion. 

The government program "Payroll Protection Program (PPP)" helps businesses get government assistance. With Covid-19, numerous companies enabled contactless payments or other technologically advanced payment methods for their customers.

A Brief History of its Evolution

It is not a new term, and it has roots in the 1950s when banks developed the early credit cards. 

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 it 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. However, it's a rare case for traditional banks.

"Ok, but how does it affect me?"

Good question. You may need to request your credit score and send an international money transfer quickly. The 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. 

The Outlook and Trends for 2022

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 set of data that anyone can see. 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, the development of 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 quickly identify different patterns in big data. 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 unstructured data (texts, images, spoken language, spending habits) on a large scale accessible. Hence, big Data refers to these alternative sources of data.

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 economic roller-coaster during the coronavirus slowed down the expansion of the industry. 

So, not all assumptions were correct.

Also, since the industry is at its growth stage, many companies are still small startups. Many firms had to downsize staff, while others had funding issues from VCs. So, there are too many uncertainties that you should take into account. 

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. 

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 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. 

Fintech firms follow the philosophy of tech companies "Move fast and break things." But unfortunately, it also contradicts the risk-averse conservatism of the financial industry and might even break the laws.

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.

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 implied regulations that protect individual investors' rights to 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.

According to a survey conducted by EY, 71% of fintech customers are worried about their data security when dealing with online services.

Fintech Landscape with Examples

There are several types of financial innovations:

  • Banking

Mobile and open banking is probably the core of the industry. 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 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.

  • Payments

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.

  • Lending

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.

  • Insurance

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.


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 who have rising earnings potential and colossal inheritance. 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.

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 the interest rate is zero.

How to Learn FinTech (and the Four Skills You Need)

There are several ways to learn essential industry fundamentals and relevant applicable skills.

Educational Pathways

They are three following ways to learn about the industry:

  • FinTech Boot Camps

Bootcamps help students put their foot in the door as quickly as possible. It provides structured learning and hands-on experience for those interested in this field. 

You can also pursue boot camps remotely, which gives students flexibility without sacrificing quality.

The typical study time is from 12 weeks to 16 weeks. However, some boot camps last for 24 weeks or six months. Therefore, always check your boot camp schedule.

  • Degrees With a Focus on FinTech 

This path is the most straightforward: getting a degree in this field. Many institutions offer a degree in this industry. You will learn traditional finance. In addition, you can develop valuable tech or programming skills. 

The typical period of study is two to four years. So, it depends on the degree type and how many classes you take every semester.

  • Self-Taught FinTech Options

These resources are best suited for those who want to learn at their own pace. The materials include free and paid online courses, educational multimedia, apps, and digital guidelines. If you wish for full autonomy, you should go with this route.

Key Skills

There are four essential skills that you have to master in the industry:

  • Programming

Most firms use mobile apps or websites to widen their reach and increase consumer value. Programmers and (software) developers are responsible for building these platforms to be secure, easy to navigate, and efficient.

The well-known programming languages in the industry are C++, Java, and Ruby.

Programming skills are vital for this sector, and Python is one of today's most popular and accessible languages. 

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  • Cybersecurity

Disruptive firms, by their nature, are data-driven. In other words, the quality of their services depends on how much information they get from users. 

The more information the firm has, the more efficient the service is. It's a great business model, but it has one con. The risk of cyberattacks or security breaches of that data. That is why any professional in this industry benefits from cybersecurity skills. 

In addition, any individual can learn about cybersecurity, how protective measures are used in the industry, and other potential cyber risks.

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

  • AI/ML and Data Science

Since firms generate tons of data, they must use personalization to maximize customer value. How can they personalize financial services in a massive amount? Companies use big data to:

  • Predict their client's behavior
  • Manage finance for clients
  • Lead to critical insights

So, firms can make more informed decisions. That is why professionals in this field should understand data analysis at a basic level. Moreover, it is crucial to building a long-term career in the sector.

You may still wonder, "But you didn't mention the tools they use to process personal information in a massive amount!"

So, firms use artificial intelligence (AI) and machine learning (ML) algorithms by which they can process and analyze big data. Both algorithms give companies actionable insights. In addition, algorithms can provide an effective way to reduce risk and increase return.

Firms could automate most of their financial operations. Then, based on the data, the system can even make predictions. I am highlighting this point, PREDICTIONS! This is the most critical thing in finance, to predict the market's direction.

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Cryptocurrency started as speculative coins that were worth pennies. Look at today's price of Bitcoin. Something that is five or even six figures depending on when you read this article. 

The development of cryptocurrency depends on the improvement of blockchain technology. Therefore, professionals must know the blockchain's underlying architecture and encryption attributes. 

They must also know the primary practical uses in trading, lending, investing, etc. 

Blockchain-based cryptocurrency is going to be the leading disruptor of the financial sector.

Careers, Job Outlook, and Salaries

There are tons of career opportunities in this segment, and I will briefly discuss the three most common jobs:

Financial Analyst

Financial analysts help businesses make decisions that will generate strong earnings in the future. Therefore, financial analysts need critical skills to analyze stocks, bonds, or other financial instruments. 

The Bureau of Labor and Statistics (BLS) predicts the industry's 5% annual growth rate by 2029. The median pay for financial analysts in the US was $83,660 in 2020.

Information Security Analyst

Information security professionals implement practical policies protecting computer systems and data from unauthorized parties. With digitization, more and more disruptive firms will demand information security analysts in the future.

The BLS says that the information security analyst vacancies will grow 31% per year by 2029, way faster than many other occupations. In addition, the median salary was above the national average of $103,590 in 2020.

Blockchain Engineers

Blockchain is an inevitable part of the financial technology ecosystem since it is the base for building applications. Blockchain engineers design, build and maintain decentralized apps. 

The decentralized applications can be:

  • Cryptocurrency exchanges, 
  • Lending applications
  • Voting platforms. 

CareerOnestop reports that the median salary for blockchain engineers was $92,870 in 2020, and job placements will increase by 6% in 2029.

Want to build a career in this industry but don't know where to go? Check out our Lesser Known Career Paths course.

Researched and authored by Almat Orakbay | LinkedIn

Reviewed and edited by Tanay Gehi | Linkedin

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