Fintech: What is it? Complete guide to technology and finance
Tech
9.11.2024 1:00 AM
The word "fintech" is the result of combining two English words: finance and technology. In this sense, the term "fintech" refers to a growing industry that, through digital technologies, optimizes financial activities and their accessibility.
But do you know how fintech works in Latin America? What’s the difference between a fintech and a bank or a startup? These are the questions we’ll address in today’s weekly post: everything you need to know about the new revolution in the financial market, also known as “fintech.”
A fintech is any company that provides financial solutions through digital platforms in an efficient, agile, convenient, and reliable way.
Being a fintech means being a dynamic company—usually a young one—that uses technology to deliver financial services that are:
A fintech offers services like opening a digital account, providing credit or debit cards in both physical and digital formats, facilitating loans, insurance, and investments, all from the comfort of your smartphone.
Some of the essential utilities and characteristics of a fintech include:
These are just some of the advantages that a fintech offers. Imagine managing all your bank accounts from your smartphone, making online payments, managing your investments, handling your stock or cryptocurrency portfolio, all from the palm of your hand.
A fintech solution means no longer having to go to a bank in person—no more queues! That and more is what a fintech offers.
Fintech solutions emerge as needs become stronger, which is why some countries in Latin America are more advanced than others, like Brazil, which according to the Latam Fintech Report 2020, leads the region. Let’s take a look at this ranking of fintechs in LATAM:
1.- Brazil has 498 companies providing this type of financial solution;2.- Mexico is in second place with 249 companies;3.- Colombia with 128;4.- Argentina with 118;5.- Chile with 82.
It’s worth noting that the recent pandemic years boosted the use of digital platforms, which led to the creation of more fintechs and startups.
Even Forbes Central America pointed out that there are more and more fintechs in Latin America, and this is due to the need to reduce bureaucracy and shift to these new digital platforms, leveraging online processes.
Yes, there is a difference between these two terms. First, let’s understand what a startup is. Essentially, it’s an innovative company that uses technology and is in its early stages, meaning it has just emerged in the market and also takes advantage of the benefits of technology.
But the difference with a fintech is that not all startups are necessarily focused on the financial sector. In conclusion, some fintechs can be startups, but not all startups are fintechs.
A fintech differs from a traditional bank, a cooperative, or a brokerage firm in the following ways:
Fintechs always seek to implement trending technology and leverage every update, from design to usability through an active, practical, and intuitive platform. They aim to offer more than just customer communication support, unlike traditional banks.
→ A fintech offers practical banking solutions for your daily life in a secure and fast way through its app.
Having a digital banking app, investment services, digital payment services means being able to perform any type of transaction or financial process online because the services were developed based on the platform, not around it.
This is another significant difference between a traditional bank and a fintech. Banks have and require their bureaucratic and complicated procedures. This involves filling out forms, registering folders, documents, signatures, seals… which ultimately creates queues and wastes time.
The goal of fintechs is to leave all that in the past. Because everything can be resolved online and with a digital record, from filling out forms to authorization consents, resulting in more agile and less bureaucratic financial processes.
Traditional banks tend to work with a wide variety of financial products, beyond a checking account, they also offer investments, insurance, savings, loans, and many more.
But having a wide variety of products has its downside because it doesn’t provide a good cost-benefit ratio in each of these categories.
Additionally, banks tend to choose specific products for certain clients. For example, some investments are reserved for clients who have more money than others. This leaves out investors with lower assets, hindering access to making your money work in a different way.
A fintech can specialize in specific sectors, such as providing accessibility to the stock market regardless of your asset amount, or offering various types of insurance at lower prices.
This way, it’s easier to align yourself with a fintech that suits your needs and take advantage of all its benefits in the category you need. So, how many types of fintechs are there?
Fintech products respond to a demand that wasn’t being satisfactorily met, a need that banks couldn’t solve, from bank accounts with better interest rates to loans with lower interest rates.
As we saw in the characteristics of fintechs, one of their differentiators is that they offer more specialized services, therefore more advantageous and suitable for their users. They seek to solve a need that traditional banks fail to meet. But what types of solutions do fintechs offer? Let’s take a look at the main types of fintechs:
This type of company provides solutions for purchase and sale transactions in businesses. They leverage all the latest and greatest technology, with credit and/or debit cards in digital form, enabled for a single online purchase, offering you more security in your purchases.
Other fintechs also offer credit cards with no annual fee.
Most Latin Americans know that applying for a loan from a traditional bank, besides being a bureaucratic process, means taking on a debt with high interest rates, which deters many entrepreneurs.
That’s why in some Latin American countries, more and more credit fintechs are emerging, offering “loans” or “credits” with less bureaucracy and more digestible and attractive interest rates for clients.
But how can a fintech lower loan interest rates? Simple: a fintech operates with more focused, more concentrated structures and uses technology correctly, from analyzing a personal credit more efficiently to delivering a more appropriate and advantageous interest plan.
Most innovative financing products were made possible by crowdfunding, which are shared economy solutions for loans and credits.
Let’s say you have an entrepreneurial idea and need money to make it happen. This type of fintech provides a platform to spread your cause, your idea, and receive contributions from the community to kick-start your project.
This type of fintech company aims to facilitate access to the investment market in an agile and transparent way.
Now, investing in the stock market is a process that can be entirely online. Additionally, you can start investing from one dollar, with zero commission costs, more quickly, and with security.
Hapi is an example of a Latam investment app, offering the best in this sector. Want to know why? Here are the reasons:
If you’re interested in investing in cryptocurrencies, this post might interest you: Everything you need to know about cryptocurrency investment.
Start investing in the stock market: open your Hapi account step by step.
It’s a fact that fintech solutions are more than a trend.
The excessively bureaucratic processes of big banks, their maintenance, and even the cost of an update prevent them from offering cheaper services.
Because time is becoming increasingly valuable, that’s where fintech solutions come
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