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What is Fintech?

Fintechs have revolutionised how we manage our money. Read on to discover the history of this technology and the future shape of digital finance.

Fintech, or rather financial technology, is the technology used to provide our financial services from mobile banking to cryptocurrency. In the UK, there are over 2,500 fintech companies. In 2021, the financial services sector, worth an estimated £164.8 billion, accounted for 3.3% of all jobs.

Worldwide, the banking industry is undergoing a period of significant change, spearheaded by challenger banks, such as Monzo and Klarna, intent on evolving how we manage our money.

So what is fintech? Here’s a SWIFT history

The term ‘fintech’ is a British invention. In 2005, when launching Zopa, the world’s first ever peer-to-peer lending company, global fintech pundit Chris Skinner coined the term for the very first time. Fintech itself, however, dates back to the 1860s alongside the original development of the pantelegraph.

During the 1950s, with a wider increase in public credit card availability and developing global payment networks, particularly through American Express, modern fintechs truly came into being. The Society for Worldwide Interbank Financial Telecommunications (SWIFT), followed in 1978, providing messaging systems and allowing institutions to both quickly and accurately send and receive information on a worldwide scale.

40 years on, SWIFT remains the number one facilitator of international payments, but innovators are continually disrupting with faster and cheaper ways for us to send and receive cash.

Bringing fintechs into the digital age, PayPal, founded in 1998, initiated a banking revolution, providing the precursor to our modern mobile technology and data encryption services.

Today, fintechs encompass a variety of models and enable users to control all their financial accounts from one easy-to-use platform. Online banking continues to grow, with over 14 million British customers owning a digital-only bank account.

Modern money management

Fintechs continue to shape our financial landscape. In 2005, Sebastian Siemiatkowski, Niklas Adalberth, and Victor Jacobsson founded Swedish fintech Klarna

Offering instant access to finance, with 0% interest options, Klarna has changed shopping habits in Norway, Finland, Denmark, UK, and USA. According to CEO Sebastian Siemiatkowski, Klarna “creates an alternative to traditional banking services in real time. Making customer lives easier, saving time, money, and making them less worried about their finances.”

With over 5 million customers, Monzo is one of the biggest app-based challenger banks in the UK. Founded in 2015 by Tom Blomfield, Monzo’s products include transfer tools, free transactions abroad, FSCS money protection, in addition to savings pots and budgeting options.

Blomfield developed the idea for Monzo when noticing “massive technology problems and massive cultural problems,” within the industry. He added, “banks are not necessarily incentivized to think about the customer in the right way.” Monzo offers its customers an alternative, person-centred approach with access to 24/7 support. 

A payment service provider designed for businesses, Stripe accepts credit, debit, and virtual wallets both online and in-store. Irish entrepreneurs John and Patrick Collison founded Stripe in 2009, offering online businesses transparent, flat, pay-as-you-go pricing for its basic processing services. 

Tomorrow’s world

Many new businesses offer specialist financial services to revolutionise the banking sector, with plans to repair age-old industry problems surrounding international transaction fees, poor customer service and security issues. 

Let’s look at several new fintech startups aiming to change banking for the better.

Helping to make your money go further, Moneybox takes allocated cash from your bank account and automatically invests it into tracker funds, providing a better return than traditional savings accounts. 

Moneybox recently secured £30 million in Series C funding. In an interview with BBC Business, co-founder Ben Thompson said: “It’s a great way for people to put money aside without even thinking about it.”

A purpose-led fintech giving investors a shareholder voice, Tumelo allows people to see exactly which companies they own through their pension and personal investments. It also gives them a shareholder voice heard on important humanitarian topics such as climate change or gender equality. 

Georgia Stewart, CEO and co-founder, stated that Tumelo “gives investors and pension members visibility of the companies they are invested in and a shareholder voice on the environmental and social issues those companies are facing.”

By doing this, “Tumelo is driving mass engagement with sustainable finance and a grass-roots movement towards true shareholder democracy.”

What is fintech? The future of finance.

Combining technology with finance means that our money methods are constantly changing. Although cash remains a crucial factor to many, more and more of us are turning to digital financial management, with over 1.9 billion individuals worldwide using online banking. With over 2,500 fintech companies in the UK, a figure only set to grow, how we manage our money will no doubt continue to develop in line with emerging technologies.

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