5 Benefits of Fintech

FinTech, or “Financial Technology”, is the use of software by companies to provide financial services to their customers. It can include online brokerages, budgeting software, or online banking. In all cases, it relies on the use of digital software to provide benefits to the consumer. Here are 5 things you should ask yourself when using fintech.

What can I use it for?

Fintech has a use in just about every financial category. Some examples include Robinhood app, Chime, You Need a Budget (YNAB), Coinbase, and even your bank’s mobile app and website.

Many banks have developed not only their own website, but also their own app. Due to the wide use of smartphone technology, and how many people in the world use it, banks without a mobile application would be at a competitive disadvantage. 

Many services that banks provide in-person are also provided on their app. For example, instead of writing a check or sending a money order to another individual or separate bank account, you can send it digitally in almost the same amount of time. Since it was created in 2009, mobile check deposit has become a growing fintech feature. With this feature, you can deposit a check into an account from anywhere, with visiting a branch. This can be useful if your closest branch is a far drive, or if you are out of state and need to deposit a check into your account. To prevent double deposits, most banks will require annotating, “for mobile deposit only”, on the back of the check.

Major investing brokerages have also created their own fintech applications. This includes TD Ameritrade, Fidelity, or the popular Robinhood app. Brokers allow you to buy and sell stocks, bonds, and other assets through these applications, both on your phone and computer. To make this an easier process, they allow individuals to connect their bank accounts to easily transfer money to and from the brokerage account. In some cases, brokers will provide the option to connect a debit card to the account, to make it to fund your account.

When most people think of “budgeting”, they imagine pouring over spreadsheets comparing receipts and statements to account balances. Today’s software has made it easier than ever to create, track, and follow a budget. Applications such as Mint and YNAB can connect directly to your checking and savings accounts, helping you follow your budget and stay on the straight and narrow path. This allows the consumer to develop their budget anywhere, whether on the train, in an Uber, or at work. Most budgeting applications are free, like Mint, others only have a free trial, followed by mandatory subscription, such as YNAB.

Are fintech applications regulated?

Regulation will depend on the financial service that is provided. Banking apps will require the same regulatory compliance they would for in-person services, such as the Bank Secrecy Act (BSA), and electronic fund transfers (Regulation E). 

Online brokers will also follow regulations they would otherwise adhere to, such as securities licenses with the Financial Industry Regulatory Authority (FINRA), and registration with the U.S. Securities and Exchange Commission (SEC). Individual users of these platforms are not classified as broker or traders, and are not required to be licensed. Individuals acting on their own, outside of registered companies, are otherwise known as “retail investors”.

It’s important to know that all applications, platforms, and businesses are required to adhere to some form of regulation surrounding the use of personal data, and are restricted to by the types of data they are allowed to gather on an individual. 

Financial technologies with the most regulation are technologies that provide specific financial services, such as banking, investing, or lending. Other technologies that are less regulated are ones that provide tools, but no specific financial service. These are applications such as personal budgeting platforms, or platforms intended for research, such as stock screeners who provide stock prices and news, but do not participate in the exchange of securities.

Should I use Fintech to invest?

The decision to use financial technology to invest and trade securities is left to the discretion of each individual. For those that choose not to invest using financial technology applications, retail investors are able to work with traditional brokers, while utilizing fintech to monitor their accounts.

Some investing platforms will provide automated advisors, often referred to as “robo-advisors”, to help individual investors make educated decisions. These robo-advisors use mathematics and statistics to provide – somewhat – personalized investing advice based on information such as age, income, and risk tolerance.

Fintech is more than mobile applications like Acorns or Robinhood. Many 401(k) and IRA plans have web and mobile platforms to provide more for their clients to monitor and manage their retirement accounts.

What are the benefits of fintech?

The benefits of fintech are seen in our daily use. Any financial service that uses digital technology is a form of fintech. 

Fintech has provided easier access to our money wherever we are. Whether you’re at home or on a road trip, you can have access to your money anywhere. Debit cards, which have been in use since the 1990’s, are also a form of financial technology. 

When we consider investments, financial technology has come leaps and bounds. Before the internet, investors had to research stocks through literature at their local library, often locating the most recent edition of Moody’s Manual, or they could contact a company directly and ask for their financial statements. Once a suitable company was found, individuals would visit a local broker, or call a broker and conduct the transaction over the phone. Now, all of that can be done anywhere, using technology held in the palm of your hand.

Much of the information surrounding investments such as stocks, bonds, commodities – even crypto – would have been information known only to those who worked specific roles. With the advances in financial technology, consumers are able to invest in multiple asset classes with almost every bit of information that Wall Street has. One of the few exceptions being the most up-to-date prices on the stock market; current stock prices have a 30-minute delay for retail investors.

What are some drawbacks of fintech?

A common point against fintech is that it “gamifies” [game-uh-fy-s] financial matters, in that it makes the process so easy that it feels like a game, and is not taken seriously. For example, the popular app Robinhood enables users to buy stocks simply by making a few swipes on their phone. The graphics and chimes provide such a pleasant experience. Critics claim this creates a dopamine response, drawing the individual back for more stock purchases, which may not be sound investments. 

One complaint from consumers is the lack of physical locations many fintech companies have. For example, unlike brokers like Edward Jones or Charles Schwab, Robinhood Financial LLC, the owners of the Robinhood app, don’t have a physical location you can visit to sign up or make purchases. All services are provided through their mobile application. Attempts by its users to contact their customer support has been met with hours of wait time and endless frustration.  

FinTech is a powerful tool that leverages modern technology to provide financial services to a large group of consumers. It’s important to consider what it can be used for, but also its limits. FinTech has a lot of benefits, such as access to personal funds, democratizing finances, and availability of mass financial information. But, there are also drawbacks. Investing apps provide the opportunity to create wealth, but do not any financial advice. Despite the drawbacks, FinTech has helped shape our world from global businesses, to personal finances.