Financial technology, or fintech, has revolutionized the way individuals and businesses manage money by improving and automating financial services and processes. As we speak, fintech is making financial services faster and more accessible, affordable, and reliable. More institutions are implementing powerful technologies to gain a competitive edge, and the industry seems to push forward more and more every year.
The term “fintech” refers to innovative applications, hardware and software that allow people to access financial products and services digitally. Banks have used automatic teller machines (ATMs) and computers for decades, but contemporary fintech emerged in 2008 after the global financial crisis. This event caused widespread mistrust of banks, motivating many people to seek alternative financial solutions.1
Today, new tools such as peer-to-peer payment apps and robo-advisors allow consumers to manage their finances independently and digitally. You can manage your bank accounts and investment portfolios without ever setting foot inside a brick-and-mortar bank.2 And with all of these developments, the industry has grown dramatically in the last few years. In 2017, the fintech sector was worth $90.5 billion. As of 2023, the industry’s value is $179 billion.3
Let’s take a closer look at some of the biggest innovations in fintech and how they will change business for the better in the future.
Artificial Intelligence and Machine Learning: Robo-Advisors
One of the biggest trends that is becoming increasingly popular in financial technology is the use of robo-advisors. As the name suggests, robo-advisors are software programs that can create and automatically manage investment portfolios with little-to-no human supervision.
Recent statistics show that assets managed in the robo-advisors market are expected to reach nearly three trillion U.S. dollars in 2023. The figures are projected to increase at an annual growth rate of 14% and exceed four and a half trillion U.S. dollars by 2027.4 Drawing from the statistics, the use of robo-advisors will grow exponentially. But are they better than financial advisors? And how exactly do they work?
A robo-advisor uses artificial intelligence and machine learning to automate multiple investment tasks. Signing up starts with answering questions online about investment time frames, risk tolerance, and financial goals. The robo-advisor uses this information to create your investment portfolio. Then, it monitors your account by completing tasks like portfolio rebalancing and tax-loss harvesting to offset capital gains tax liability.5
Robo-advisors are generally more affordable than the traditional services of a financial advisor. The rise of robo-advisors has therefore leveled the playing field for all investors, since financial services that were traditionally affordable only to high-net-worth investors are now accessible to the average investor. However, you lose the back-and-forth and highly personal nature of financial advising, as robo-advisors are purely looking at facts and figures.
A 2022 article published on CNBC revealed that robo-advisors charge between a quarter and half a percent of your assets managed yearly.6 Financial advisors mostly charge around one percent of your assets managed annually. In other words, you pay between $25 and $50/year for every $10,000 a robo-advisor invests for you. With a human financial advisor, you pay around $100 for the same invested amount.
Blockchain and Cryptocurrency
What some investors once considered a “fraud” is on the brink of going mainstream.7 Fintech institutions are competing to build powerful blockchain technologies that can handle different types of transactions.8 According to Statista, blockchain global spending is expected to reach 19 billion U.S. dollars by 2024.9 This is a huge leap from four and a half billion U.S. dollars in 2020. But why the increasing interest in blockchain technology?
Blockchain is a decentralized digital ledger that records transactions across multiple computers. It uses cryptographic techniques to secure big data, creates a chain of blocks containing transaction information and relies on a consensus mechanism to ensure data accuracy and immutability. The technology’s unique ability to distribute many identical database copies to multiple computers within a network makes hacking or cheating the system nearly impossible.10
Cryptocurrency is currently the most famous application of blockchain. However, blockchain technology has multiple uses in fintech. For example, financial institutions can use it to create smart contracts and cut operational expenses. Smart contracts require fewer intermediaries and less human intervention to complete a transaction, reducing labor costs and driving profitability.11
Blockchain vs. The Bank
Two parties using blockchain can complete a transaction without the services of a third party, like a bank.10 That begs the question of if blockchain technology will soon replace banks?
Though blockchain may take on a portion of the bank's responsibilities, it can never replace the bank entirely for two key reasons:
- Banks enable you to store money in any country with a stable currency; this is difficult with blockchain platforms since the cryptocurrency market is highly volatile.
- The instability of cryptocurrencies and the associated regulatory challenges discourage many people from using them.12
In 2010, the fastest way to transfer money from New York to London was to book a flight and deliver it yourself.13 Today, multiple convenient digital payment methods exist for global transactions, including Apple Pay, Google Pay and PayPal. People can send and receive money via their smartphones from the comfort of their homes within minutes.
While the pandemic accelerated digital transformation across every sector, it’s clear that digital payments are the future. This is and will continue to be possible because of several innovative trends.
Embedded finance allows non-fintech organizations to offer financial products and services through APIs. The next generation of embedded finance will be powerful because it will integrate financial products into the digital interfaces that the modern person interacts with daily. For example, you now can swipe up on a Snapshot story in which someone is using a product that you like.
According to Bain, financial services embedded into e-commerce exceeded two and a half trillion U.S. dollars in 2021. This number is expected to go beyond seven trillion U.S. dollars by 2026.14
With climate change getting worse year after year, people’s awareness and demand for sustainable products have skyrocketed significantly. Visa cardholder research revealed that the majority of people take sustainability seriously, with about 62% of them more likely to apply for a sustainability-focused payment card.15 Digital payments support green payments, as they reduce the need to write checks and print out bills.
Gone are the days when it was mandatory to visit a bank branch, stand in lines and adhere to traditional banking hours to transfer money. Through online banking, people can access their accounts and make transactions anytime, anywhere. Mobile wallets and peer-to-peer transfers offered by banks enable digital payments. Since 85% of people prefer banking online or via a mobile app, online banking is the future.16
Become Fluent in Cutting-Edge Financial Technology
In the ever-evolving finance industry, it’s nearly impossible to predict what trend or innovation will emerge next. But if you surround yourself with knowledgeable, experienced finance professionals and learn the latest in fintech tools, you’ll have a leg up on the competition.
To ensure students are prepared for success, professors at Yeshiva University’s Sy Syms School of Business track upcoming trends and update their course content to meet the evolving needs of the accounting profession. The online MS in Accounting curriculum sharpens your analytical skills, deepens your knowledge about business principles and keeps you on top of trends in financial technology, accounting, taxes and more.
Set up some time with an admissions outreach advisor to see if the program is right for you.
- Retrieved on August 8, 2023, from http://heinonline.org/HOL/P?h=hein.journals/geojintl47&i=1298
- Retrieved on August 8, 2023, from https://thepaymentsassociation.org/article/fintech-the-history-and-future-of-financial-technology/
- Retrieved on August 8, 2023, from https://explodingtopics.com/blog/fintech-stats
- Retrieved on July 14, 2023, from statista.com/outlook/dmo/fintech/digital-investment/robo-advisors/worldwide
- Retrieved on July 14, 2023, from investopedia.com/terms/r/roboadvisor-roboadviser.asp
- Retrieved on July 14, 2023, from cnbc.com/select/robo-advisor-vs-financial-advisor/
- Retrieved on July 14, 2023, from edition.cnn.com/2019/02/15/investing/jpmorgan-bitcoin-crypto-jamie-dimon/index.html
- Retrieved on July 14, 2023, from cbinsights.com/research/report/fintech-250-startups-most-promising/
- Retrieved on July 14, 2023, from statista.com/topics/5122/blockchain/
- Retrieved on July 14, 2023, from forbes.com/advisor/investing/cryptocurrency/what-is-blockchain/
- Retrieved on July 14, 2023, from forbes.com/sites/forbestechcouncil/2023/01/31/how-fintech-and-blockchain-are-evolving-and-disrupting-financial-institutions/?sh=58a9ddef483a
- Retrieved on July 14, 2023, from blogs.worldbank.org/psd/fear-uncertainty-and-doubt-global-regulatory-challenges-crypto-insolvencies
- Retrieved on July 14, 2023, from jpmorgan.com/content/dam/jpm/treasury-services/documents/jpm-payments-are-eating-the-world.pdf
- Retrieved on July 14, 2023, from bain.com/insights/embedded-finance/
- Retrieved on July 14, 2023, from visa.co.uk/about-visa/newsroom/press-releases.3142789.html
16. Retrieved on July 14, 2023, from finance.yahoo.com/news/85-people-prefer-banking-online-230017502.html