Fintech: The finance systems of the future

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“Fintech” is a term sweeping the finance industry that represents a significant change in how people and businesses manage their money.

Developments in technology, machine learning, mobile applications and cyber security have enabled a swath of exciting new financial services and products to enter the market. These and similar types of tools – known as “fintech” – are presenting new and exciting opportunities to consumers and banks as well as individuals interested in careers in finance.

The online Bachelor of Science in Finance offered by the University of Alabama at Birmingham Collat School of Business covers the theoretical frameworks and essential topics of finance while also examining the changes that are taking place in the industry.

Knowledge and awareness of fintech are essential for any individual interested in beginning or advancing a career in the sector. This article takes a closer look at fintech to expand your understanding of this dynamic field.

Fintech of yesterday vs. today

Fintech is currently defined as any technology-based services, programs, platforms or tools that support financial services and activity. For instance, SoFi, an app that helps individuals borrow and invest money through a “social finance” platform, is a fintech company, as is Mint, an app which helps people track and manage their spending.

Fintech past
However, the definition of fintech has changed over the years. Originally, the term was used to describe the digital processes used by big banks and lenders “behind-the-scenes” on the back-end of transactions. Known as blockchain technologies, these processes enable the secure exchange of consumers’ or institutions’ financial data.

Fintech present
Today, the insights gleaned from blockchain technologies, along with developments in mobile technologies, have given way to a slew of new applications that bring technology services out of the background and into the hands of consumers. As an article in American Banker noted, “Many blockchain experiments in finance are being converted to real-life applications providing meaningful solutions to existing problems.”

Fintech, as it is currently defined, is about the digital tools available to help individuals manage their funds and deal with the monetary demands of regular, daily life. These tools mean that people are no longer required to go through the large, established banks to manage their finances, but can instead do so on a more personalized level with solutions customized to their needs.

As such, disruption plays a major role in the nature of fintech today. As companies like Uber have disrupted transportation, and as Airbnb has disrupted travel and lodging, fintech is revolutionizing the financial services industry and is significantly changing the ways people are able to engage with their money.

Examples of fintech

Both startups and large, established financial institutions are participating in the fintech sphere. Smaller companies are driving innovation in the space, backed by venture capital, while larger banks and lenders are looking for ways they can offer more personalized, easy-access financial services to their customers.

PricewaterhouseCoopers’ fintech division considers there to be four categories of “players” in the industry:

1. Large, established financial institutions, such as Wells Fargo and Bank of America.
2. Large tech companies that offer financial services but participate in activities in other sectors as well, such as retail.
3. Companies that design, build and sell the technological infrastructure that enables financial transactions to take place.
4. Agile startups focused on innovation in specific segments of financial services technologies, known as disruptors. An example is Prosper, a company that offers nontraditional peer-to-peer lending services.

Fintech companies and services can drive change in any number of areas of financial services. Often, these services aim to democratize and expand access to money management, for under-served groups in particular.

For instance, Lenddo is a service that calculates people’s credit scores based on alternative data sources such as Twitter, Facebook, LinkedIn and Google, using “non-traditional data to provide credit scoring and verification for the emerging middle class,” as its website explains. Another example is SERV’D, an India-based app that helps informal workers such as cooks and nannies have more transparent access to their wages and work contract details, as the Harvard Business Review explained.

Fintech can also streamline financial processes, such as Circle, which enables the easy transfer of money online, or offer consumers greater solutions, such as Commonbond, which refinances student loans.

Big financial institutions, recognizing the rise in demand for more “disruptive” services, have also gotten into the fintech game. For example, Citigroup created Citi FinTech, a division designed with the agile, disruptive spirit of a startup in mind and made up of industry experts culled from PayPal, Amazon and other tech companies, as Fortune magazine detailed. To further encourage innovation, Stephen Bird, CEO of Global Consumer Banking at Citigroup, implemented a new practice in which fintech teams would work on developing new products and services in “two-week sprints.” As a result, Fortune noted, Citi launched its new mobile banking app in December of last year, with the app boasting forward-thinking features like biometric log-in via fingerprint or facial recognition.

A common theme throughout many fintech services, whether offered by Silicon Valley startups or big banks, is that they aim to empower consumers to have greater control of and insight into their finances.

The future of fintech

New issues are emerging as fintech becomes more sophisticated and continues to flood the market. One such issue is that of regulation. With many new and novel ways for consumers and small businesses alike to acquire and manage financing, the question remains of how – and if – these digital, disruptive transactions and services should be regulated and monitored.

As noted in the foreword of the World Economic Forum white paper, “The Complex Regulatory Landscape for FinTech: An Uncertain Future for Small and Medium-Sized Enterprise Lending,” “The applicability of current regulations, and the language of those forthcoming, need to be clear and transparent so FinTech firms can appropriately navigate their industry’s ever-changing environment … Furthermore, the regulatory architecture must remain dynamic to handle the innovation coming from MPLs [marketplace lenders] and the fast pace at which they move and evolve.”

In response, some major financial institutions are seeking to offer guidance to small companies desiring to enter the fintech space. The San Francisco Federal Reserve, for example, has started providing virtual consultations between their fintech advisors and firms interested in operating in fintech.

Another coming shift in fintech may be increased business-to-business fintech services, beyond the current prevalence of business-to-consumer services, as PricewaterhouseCoopers FinTech explained.

“We predict a lot of FinTech innovation in the next 12 months in the business-to-business (B2B) space. You can think of this as “FinTech 2.0.” Here, expect tech innovations like blockchain to come on line. As they do, they’ll start to radically alter business processes and drive down costs. We’re already witnessing a lot of firms exploring how they can apply these breakthrough technologies. Done right, there are some real efficiency gains to be had,” the report noted.

And third, there is growing discussion around the ethical storage and use of data collected by fintech apps and services. The World Economic Forum has developed four recommendations for fintech companies, one of which is to “clarify the boundaries on the use of customer data for business purposes by actors in the financial system.” Determining these boundaries will be key to the fintech industry continuing to flourish.

Fintech career outlook

With the fast-paced rate of digital change taking place in both the financial services and technology industries, there are many job opportunities available to those interested in careers in fintech, and many hybrid job titles are emerging that reflect the combining of finance and technology. One such job role is financial software developer, a position which can garner salaries in excess of $100,000, according to Glassdoor.

Growth in financial industry jobs is expected overall. According to the U.S. Bureau of Labor Statistics, financial analyst employment is anticipated to increase at a faster-than-average rate of 12 percent between 2014 and 2024, while financial advisor jobs are expected to increase by 30 percent during the same period. And employment in the finance sector overall is expected to have a growth rate of 14.3 percent through 2022.

No matter the specific roles that individuals may take on in finance, it is important that professionals in the field understand the applications and implications of technology on the products, services and programs they provide.

UAB’s Online Finance Degree

A bachelor’s degree in finance can help those interested in a career in finance or fintech develop essential skills and knowledge. According to the BLS, 42.2 percent of people who work in finance in the U.S. today have a bachelor’s degree. Through an undergraduate education in the field, individuals interested in careers in the industry can get their journey started on the right foot.

The online finance program offered by the University of Alabama at Birmingham Collat School of Business provides students with an innovative course curriculum that utilizes technology-driven instructional methods for a forward-thinking education in the field, with the benefit of being able to prepare their careers on their schedules, thanks to the convenience of the online program.

If you are interested, contact an enrollment advisor at the University of Alabama at Birmingham Collat School of Business today.