Why Is FinTech So Important?

The world as we know it is ever-evolving and changing. One of the ways that the modern world changes are through finance. The economy and finance are extremely important to modern life. Finance runs just about everything people do on the planet. It influences how most people live and how they behave.

FinTech, or financial technology, is important because it improves the speed, effectiveness, and security of monetary transactions. Advances in FinTech generally revolve around payment processing and banking, which are both fields that serve as intermediaries between many others.

One aspect of finance that plays a major role in our economy has to do with FinTech. FinTech has been around for a while but it is now becoming more relevant to the world today. The information presented here will explain FinTech, its importance, and how it benefits everyone today.

The Definition of FinTech

FinTech is derived from the words financial and technology. This word combination is known as a portmanteau or blended word. Citigroup (which used to be known as Citicorp) came up with the phrase FinTech for a consortium. This banking company was trying to dispel its reputation for not wanting to do business with technology.

They used the phrase to ensure potential partners, clients, and consumers that they were pro-tech with their banking services. Enhancing financial services is another way that FinTech can be defined. Finally, it can also mean digital services that are used to replace existing financial services.

There is the standard definition of FinTech, and it can be found in Merriam-Webster’s or Oxford dictionaries. The term means “products and companies that employ newly developed digital and online technologies in the banking and financial services industries”. FinTech isn’t limited to just this explanation. FinTech also describes any innovative idea that improves financial services for governments, businesses, and consumers.

FinTech also has to do with the delivery of financial services. FinTech is also written and stated as “Fintech” and “FinTech”. There are plenty of other meanings for the term FinTech. Still, the term is ultimately defined as financial technology and everything that is a part of this system.


When Did FinTech Emerge?

We already know that FinTech was derived from Citigroup’s consortium. This consortium was officially known as Financial Services Technology Consortium. This financial process was first started in 1838. It was derived from telegraph technology which was the most highly advance communication science during that era. In 1866 a transatlantic cable was established which was also based on telegraph technology.

Once this transatlantic cable was laid in 1866 it laid the groundwork for digital applications which would define the world today. The transatlantic cable is responsible for credit cards that emerged in 1950 and the ATM that showed up in 1967.

The late 1960s was a turbulent time in America. However, it was also a time of great change that very few people during those days paid attention to. American society changed dramatically during the late 1960s in terms of technology. Securities exchanges such as NASDAQ showed up during the late 60s.

By the early 70s, it introduced the world to electronic security exchanges. The early 80s saw the decline of online trading. While online trading wasn’t even available to the public during that decade; the sharp decline in prices set a precedent for the future of trading.

The internet didn’t catch on with the public until the late 90s. Once it did, financial services for consumers started to grow. Between 2000 – 2008 is the time when the financial industry started to gain traction with governments, industries, corporations, businesses, and individuals. By 2008, many businesses, organizations, groups, and individuals were introduced to concepts such as online banking, digital financial management, and financial industry applications.

By 2021, the world of FinTech has evolved into a comprehensive financial system that is now capable of providing businesses and people with opportunities for economic growth and development. Don’t forget that nearly 1 trillion dollars are now being spent to provide various entities with FinTech services.


The World Before FinTech

Long before digital transactions were conducted by banking institutions, banking was carried out by merchants and kingdoms. What they did was issue grain and other goods to farmers, traders, and local people who had to pay them back. They usually paid them back in the form of crops or some other type of product. This process went on for thousands of years. People basically bartered their goods for other things that they needed.

For example, if a person needed meat for their family or village, they would trade grains or produce to get it. In many situations, people borrowed resources such as wood and paid their lenders back with wood or some other type of item. This activity was important because it helped lay the groundwork for how the modern economy functions today.

By the late Middle Ages, banking started to change significantly. Kingdoms and merchants began to issue notes to people who held coins as a form of money. Remember, paper money wasn’t used in history until around the 1600s. Before paper money was issued, people had to carry heavy coins. In some cases, they held on to chunks and pieces of metal to use money.

This activity was impractical. Eventually, merchants and kingdoms started to hold onto people’s money and issued them paper notes in return. Once this practice became widespread it laid the foundation for the banking industry. The early banks eventually evolved into what they are today. By the early 1900s, the top banks in Europe were issuing loans.

The Rothchilds (the richest family in history) started international finance, funded wars for European powers, and they started to create new bans. They were also the first banking personnel to purchase stocks. The end of World War II ushered in a new era in terms of banking and technology. After the Second Great War ended, it became a standard practice for banks to lend money to countries.

Commercial or personal banking emerged to become a normal part of modern life. Once banking became a normal part of life, that’s when FinTech was slowly introduced into the system. Today, banking is now a huge field that is intertwined with various sorts of computerized technology.

What are the Different Parts of FinTech?

There are many different aspects of Fintech activities. They include (but are not limited to):

  • Money transfers. Having the ability to transfer money without a bank or financial institution collecting fees is a big deal. Businesses and consumers can now save lots of money for these types of transactions.


  • Smartphone banking activities for savings, checking, money market, and online deposits. People with their own personal banking account will have greater financial freedom and more opportunities to use their money.


  • Managing personal investments without a broker because of the internet. This is a big deal because the average person couldn’t afford to use a broker for investment. We’ll tackle the subject of Fintech and investments later in the article.


  • Allows customers 24-hour access to their money. They can transfer money between accounts, invest their funds late at night, or make purchases without having to travel to the bank (or ATM) to withdraw money.


  • Raising money without the use of a bank since the internet allows this activity online. Being able to raise capital online is a big deal because entrepreneurs and businesses can now get the money, they need by directly contacting personal donors.


  • Applying for a credit card directly with a card company. People could apply for credit cards in the past, but they had to send letters to get a credit card application mailed to them. Online credit card applications make this process easier to accomplish.


  • Peer-to-Peer payment methods. Service such as PayPal allows for businesses and individuals to send and receive money directly to each other. This is another process that saves businesses and consumers lots of money on fees.


  • Streamlined digital tracking allows people to easily view their spending activity without the use of paper receipts. People can easily track their spending habits to see where their money is going. They can then quickly adjust expenditures if there is a need. They can also quickly figure out how much money they’re bringing in and what they can do to improve their cash flow.


  • Robo-advisors examine investments and figure out the best way to manage them. Robo-advisors can perform around-the-clock research and investment activities that cannot be performed by human brokers.


  • Mobile banking gives people greater access and use of their money. Digital banking allows people to manage and use their cash over distances. They are no longer must travel to a bank to receive services.

Fintech can also be used for many other types of banking activities. Fintech also provides people with advanced financial services they are listed below:

  • Blockchain

One of the greatest advancements of FinTech is blockchain technology. This type of technology is the cutting edge of the modern financial and technical system of finance. Blockchain is going to change how the world does business and it’s going to provide more wealth and financial services for people around the world.

  • Cryptocurrency

Cryptocurrencies are the next type of money. These currencies are rooted in blockchain technology and they are now providing wealth to people who normally would not have access to it any other way. Cryptocurrencies are highly volatile and unpredictable. Still, many people agree on their value as a new form of money.

  • Cybersecurity

Cybersecurity and Fintech go hand in hand. Fintech is important to the development of cybersecurity practices. Without a robust cybersecurity system or protocols in place, the FinTech industry would simply fall apart. Keep in mind that more than enough criminals are smart enough and ruthless enough to rip millions of people off out of their money.

  • Open Banking

Open banking allows third-party developers to create apps and other digital services around banking institutions and financial organizations.

  • Smart Contracts

Smart contracts utilize blockchain technology and are designed to automatically enforce or execute parts of contracts when another party might violate them.

Fintech can be used to perform a wide variety of other services for businesses and individuals. The benefits listed above are among the most important type that this service provides. Now, let’s take a look at how Fintech makes money and helps companies to grow.

An Explanation of how FinTech Helps Companies to Grow and Make Money

FinTech helps companies to make money by providing clients and consumers with technology for their financial activities. This tech is also useful for helping businesses and individuals from dealing with risks that traditional insurance refuses to cover.

Companies can leverage FinTech to help their clients and consumers to acquire basic and advance financial services. This tech also makes businesses more transparent and provides greater security for clients and consumers. This in turn helps to improve their trust and influences many people to join their organization.

Exceptional FinTech services allow a bank or financial institution customers to use their money with fewer problems and interruptions. People will generally store more of their money with a financial institution that is reliable and trustworthy. When banks have more customer money on hand, they are in a position to make more loans and to provide more financial services which improve their bottom line.

FinTech also makes financial organizations and businesses money by providing people subscriptions, through the use of robo-advisors, and peer-to-peer services. Advertising, crowdfunding, and cryptocurrencies are other FinTech services that can be used to make money for enterprises as well.

FinTech, Investments, Robo-Advisors, and More

FinTech allows the average person to invest their money. In the past, the average person simply could not do this because they simply did not have enough money to invest, and/or they couldn’t afford the consistent broker fees. Thankfully, FinTech has allowed the average person to invest small amounts of money. This in turn raises capital for financial institutions, entrepreneurs, and other businesses.

Robo-advisors are extremely important to this process because robots (or programs) can be used to provide people with investment information. This is important to understand because so many people are now able to invest without the guidance of a broker. These investment services help to leverage the financial system and the economy in favor of the average person. In the past, this benefit was not possible.


So, Why Is FinTech Important?

FinTech levels the playing field in the world of finance. It also helps to spread finance around the world to financially inept people. You might not realize this, but roughly 1/3 of the world’s population has a bank account.

The vast majority of people on Earth don’t own one. This means that most people don’t make enough money to have a bank account or simply do not have access to banks or online banking services.

This is a big deal because money is power in the modern world. The average person who has limited resources and no ability to manage their money will have less power in their finances. They will not be able to do things to improve their lives or to make their lives easier. Many of the world’s third-world countries do not have adequate banking services for their citizens.

FinTech can be used in these parts of the world to help people to have greater financial control. FinTech can allow people to set up direct deposits into an account and it can help people to invest in cryptocurrencies. Truthfully, a person no longer has to travel to a bank to use financial services. They can simply use their smartphone, tablet, laptop, or PC to perform this function.

Just keep in mind that people need the internet to perform these services. Lack of internet services also hinders the use of FinTech. Once internet service has been established people will be able to benefit from the use of FinTech. FinTech is also important for many 1st world countries.

People who reside in poorer communities within 1st world countries can also benefit from the use of FinTech as well. FinTech helps them to improve their finances and to make their lives better in many ways.

FinTech is also important because it allows businesses to raise capital for growth and expansion. Entrepreneurs can generate capital to start their businesses. This helps them to avoid dealing with banks. FinTech makes investing a lot easier for everyone. This process also makes it easier for many people to control and manage their money.

The Future of FinTech Services

FinTech is going to continue to develop well into the future. As more people are being integrated into the digital economy, FinTech will become a necessary part of life. Online and application banking is now a standard for many people. App-based investing is going to become more widespread. People are going to be able to start their own businesses without bank backing or approval.

Companies will be able to expand their services into different parts of the world or their surrounding communities where financial services are limited. Ultimately, FinTech is going to make economies, businesses, and individuals more stable and productive.


Gene Botkin

Gene is a graduate student in cybersecurity and AI at the Missouri University of Science and Technology. Ongoing philosophy and theology student.

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