What is FinTech?
We have all received help from technological advancements that have led to a better standard of living and a transformed lifestyle. Due to ever-growing financial service departments, we have seen dramatic changes in how we manage our businesses and even our personal finances in recent years. Additionally, a growing number of FinTech businesses are appearing to enable the public to access financial services. Besides offering standard financial services such as investing, saving, and loan processing, it also combines innovative technologies such as blockchain technology and cryptocurrencies.
Introducing our latest blog by Digital One Agency which discusses FinTech, why it is important, if it is safe, how it is regulated in Australia as well as how FinTech applications are being used in Australia today.
What is FinTech?
The term “financial technology” is abbreviated as “FinTech.” It’s A term that refers to any technology that improves, streamlines, digitises, or disrupts traditional financial services.
In the 21st century, FinTech was a term applied to the technology used to run back-end systems in set up financial institutions. FinTech’s definition is to enable businesses, businesses, and individuals to manage their financial operations, processes, and lives more efficiently using specialised software and algorithms on computers and increasingly mobile phones. FinTech is easy to use and does not require any prior financial knowledge. It can be used for everything from tax calculation to market speculation. FinTech is used for payment processing, e-commerce transactions, accounting, and more recently for requests for help from government aid programs.
Key changes include changes that affect investment management, business and personal lending, remittances, and investment methods. Financial technology involves transforming the business and our own financial structure. Following the COVID19 epidemic, increased companies are using FinTech to provide consumers with elements such as contactless payments and other digital transactions.
Why is FinTech so important?
Modern civilization relies heavily on FinTech. Our world of convenience relies on FinTech for several reasons. Here are a few:
Safer than traditional banks: Traditional banks and financial institutions are lagging in adopting innovative technology and cyber security techniques, resulting in security breaches. FinTech companies use their platforms to ensure the security of all customer data and information. In fact, many FinTech companies are deploying breakthrough technologies to protect their users more than ever. Examples include location-based security and real-time expense alerts. Data security is paramount to FinTech companies.
It is a way to improve your finances: FinTech firms, as compared to set up financial institutions, may often supply the same product at a lower cost. By using technology to automate processes, FinTech firms may save money on wages. They save money as well by not having physical branches to service their customers. Overall, FinTech businesses have low overhead costs, allowing them to pass the savings on to you. Nowadays, no fee bank accounts, and no commission stock trading platforms are available. That means you have more cash on hand.
Financial inclusions are created by FinTech: This is because FinTech is always available to anyone. It is also available to people who have never used financial services. FinTech companies support the redistribution of wealth and build a more economically just society by supplying access to basic financial services such as digital banking and electronic wallets.
Convenient for customers and businesses: Many traditional and digital financial institutions now offer same-day loans once the application is approved. Financial technology services handle everything. Imagine you are looking for a short-term credit or payday loan. There are many companies that respond quickly to your request. As demand is increasing, we need better things to meet our economic needs. Therefore, getting information from trusted FinTech companies can help you make decisions faster.
Peer to peer Lending: This is a type of loan where a third-party company connects a person who wants to borrow money with an individual or company who wants to invest. The borrower receives an interest rate corresponding to the risk tolerance, and the investor receives an attractive interest rate according to the investment period and the risk tolerance. RateSetter is an example of peer-to-peer lending in Australia.
Digital Banks: These are new banks, also known as Neo banks, which can only be accessed from mobile phones. Designed with innovative technology, they include advanced features such as spending insights, multi-currency compatibility, smart money-saving tips, rewards and security mechanisms. Up Bank is one of the digital banks that started operations in Australia.
Investment: Robo Advising and Stock Trading apps: Robo Advising and Equity Trading are two of the most ingenious FinTech’s that have recently revolutionised asset management methods in the industry. FinTech supplies proper asset recommendations based on algorithmic ability. The stock trading application is another popular and highly original FinTech contribution. Portfolio management costs have been reduced thanks to Robo advising. With the help of this FinTech, financial advisors can evaluate many portfolios in less time.
If robo-applications can get the job done easily, quickly, and efficiently, you don’t need to hire a financial advisor. You don’t have to be physically at the stock exchange every time you need to make a transaction. The stock trading application allows consumers to buy stock at any time.
Blockchain and Cryptocurrencies: Cryptocurrencies are digital money that can be transferred securely, and unlike traditional cryptocurrencies, they are not controlled by the government and are generated via public networks. As of 2022, about 10,000 cryptocurrencies are in circulation around the world. Top companies across multiple sectors have noticed and achieved significant gains from blockchain and cryptocurrencies. These are less effort, shorter throughput times, higher productivity, reliability, and clarity.
Digital wallets: Apple and Google are not small tech businesses, nor are they large financial institutions, however they do supply financial technology goods. Contactless payments are habitual for Australian consumers and the digital wallets for instance Apple Pay and
Google Pay allows these transactions to take place, allowing our contemporary society to function in a convenience-oriented manner.
NFC Payments: In short, “NFC” means “near field communication.” It allows devices nearby to exchange data wirelessly. The technology is already in use. Mobile payment is available on most Android and iOS devices, as well as on a growing number of credit and debit cards. Paying for goods and services on the go has been transformed by the advancement of contactless payments. Recent years have seen the popularity of mobile payments, contactless credit cards, as well as other payment methods soar, and this trend is not set to slow down soon. Visa and Mastercard, for example, support the tap and go NFC function.
How is FinTech regulated in Australia?
FinTech products and services are regulated at many levels, allowing consumers to be protected and still fostering modernisation and competition. The Australian Securities and Investments Commission (ASIC) has launched a variety of initiatives related to FinTech goods and services to allow this to occur.
“Currently, if your FinTech firm performs in the following activities, it must comply with ASIC and APRA regulations:
Financial services; consumer credit lending; registration and disclosure regulations; consumer law standards; privacy and anti-money laundering rules; and counter terrorist funding needs”
To stimulate innovation, ASIC created a regulatory sandbox to permit FinTech companies to evolve and assess goods and services in a restricted environment before obtaining a licence.
The ASIC imposes specific requirements on FinTech companies that must be met to run a business. These requirements are that FinTech companies must have an Australian Credit Licence (ACL) and Licence Agent to supply credit services.
FinTech must be compliant with both ASICs and APRAs and keep continuous compliance with AML / CTF laws. Unless an exception applies, if your organisation is engaged in financial services or lending operations, you will need to obtain an AFL or ACL. Furthermore, any organisation that supplies banking services that entail depositing or advancing funds must apply for authorisation as an Authorised Deposit Taking Institution (ADI).
Furthermore, if your organisation takes part in digital currency operations, it must follow the AML/CTF Act and register exchanges with AUTRAC.
Is FinTech safe?
It may seem daunting to trust your company’s financial data to FinTech. Traditional banking, in contrast, is significantly less secure than FinTech.
Many sources report that traditional banks are reluctant to implement cybersecurity measures. According to credible sources, traditional big banks are losing more money to hackers than FinTech. FinTech relies on technology and security for its foundation, making it easier to adopt cybersecurity. In addition, scammers find it more appealing and easier to access the networks of well-known traditional organisations.
FinTech carries risks, but its focus on using technology to improve banking processes allows us to tackle cybersecurity challenges more than our traditional competitors. In addition, the implementation of next-generation IT systems will enable Fintech companies to detect and respond to anomalies faster and more efficiently than ever before.
Who uses FinTech Services?
FinTech User Types:
Companies and consumers are receiving help from the innovative solutions offered by FinTech companies. There are two main categories of FinTech consumers.
Business-to-Business User (B2B):
Thanks to FinTech innovation, businesses no longer must visit a bank to conduct a transaction or make a payment to another firm. Regardless of whether a company uses credit cards exclusively, it must establish a solid relationship with a credit card provider in order to achieve the necessary level of system integration. The advances in mobile technology have removed such burdensome restrictions.
As a result of ongoing technological advancements, businesses can manage their money quickly and securely for B2B transactions. By focusing on their financial activities, B2B FinTech services augment productivity and bottom lines of businesses. The decrease in transaction costs is also a benefit to businesses.
The B2C FinTech apps make money transfers convenient and quick for anyone with a mobile phone. Because of their expanding purchasing power and vast sector size, B2C FinTech is mostly focused on millennials. Gen X is also on track to become the largest target market for B2C FinTech.