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- What is financial technology (FinTech)? A beginner's guide
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FinTech (financial technology) is an umbrella term that refers to software, mobile applications and other technologies developed to improve and automate traditional forms of financing for both businesses and consumers. FinTech can include everything from simple mobile payment apps to complex blockchain networks that house encrypted transactions.
In this guide, we discuss the different types of fintech, the skills needed to work in the field, and the job prospects for different fintech careers. We'll also look at some effective ways to learn key industry skills, such as an immersive online fintech bootcamp – a great way for aspiring fintech professionals to gain hands-on experience.
FinTech 101: Understand the basics
A simple definition of FinTech
The term “fintech company” describes any company that uses technology to change, improve or automate financial services for businesses or consumers. Some examples include mobile banking, peer-to-peer payment services (e.g. Venmo, CashApp), automated portfolio managers (e.g. Wealthfront, Betterment), or trading platforms such as Robinhood. It can also apply to the development and trading of cryptocurrencies (e.g. Bitcoin, Dogecoin, Ether).
A brief history of FinTech
While fintech may seem like a recent series of technological breakthroughs, the basic concept has been around for a while.Early credit cards from the 1950sgenerally represent the first fintech products available to the public, eliminating the need for consumers to carry physical money in their daily lives. From there, fintech evolved into banking mainframes and online stock trading services. In 1998, PayPal was founded, one of the first fintech companies to operate primarily on the Internet – a breakthrough that has been further revolutionized by mobile technology, social media and data encryption. This fintech revolution has given rise to the mobile payment apps, blockchain networks and social media-based payment options we use regularly today.
How does FinTech work?
Although fintech is a multifaceted concept, it is possible to achieve a strong understanding. FinTech simplifies financial transactions for consumers or businesses, making them more accessible and generally more affordable. It could also apply to companies and services that use AI, big data and encrypted blockchain technology to enable highly secure transactions between an internal network.
Broadly speaking, fintech aims to streamline the transaction process and eliminate potentially unnecessary steps for all parties involved. For example, with a mobile service like Venmo or CashApp, you can pay other people at any time of the day by sending money directly to the bank account of your choice. But if you were to pay by cash or check, the recipient would have to go to the bank to deposit the money.
FinTech-trends
Over the years, fintech has grown and changed in response to developments in the wider technology sector. In 2022, this growth was determined by several prevailing trends:
- Digital banking continues to grow:Digital banking is easier to access than ever before. Many consumers already manage their money, apply for and pay for loans, and buy insurance through digital-first banks. This simplicity and convenience is likely to drive further growth in this sector, with the global digital banking platform market expected to grow at a compound annual growth rate (CAGR) of11.5 percentbefore 2026.
- Blockchain:Blockchain technology enables decentralized transactions without the intervention of a government agency or other external organization. Blockchain technology and applications have been growing rapidly for years and this trend is likely to continue as more industries turn to advanced data encryption. Check out oursguide to blockchain technologyif you are interested in learning more.
- Artificial Intelligence (AI) and Machine Learning (ML):AI and ML technologies have changed the way fintech companies scale, redefining the services they offer to customers. AI and ML can reduce operational costs, increase customer value and detect fraud. As these technologies become more affordable and accessible, expect them to play an increasingly important rolethe continued development of fintech– especially now that more and more physical banks are becoming digital.
The technologies that power FinTech
Modern fintech is primarily powered by artificial intelligence, big data and blockchain technology – all of which have completely redefined the way businesses transfer, store and protect digital currencies. Specifically, AI can provide valuable insights into consumer and spending behavior for companies, allowing them to better understand their customers. Big data analytics can help companies predict changes in the market and create new, data-driven business strategies. Blockchain, a newer technology in the financial world, enables decentralized transactions without the input of a third party; tapping a network of blockchain participants to monitor potential changes or additions to encrypted data.
How safe is FinTech?
FinTech companies are generally trusted by consumers -according to Forbes68% of people are willing to use financial instruments developed by non-traditional (e.g. non-financial, non-banking) institutions. However, many fintech applications are relatively new and are not currently subject to the same security regulations as banks. This doesn't mean consumers shouldn't trust fintech companies with their money; it just means that it pays to be careful. For most consumers, the benefits of working with a fintech company outweigh the perceived risks.
Different types of FinTech
FinTech has been used to revolutionize financial institutions for millions of people around the world, changing the way we pay each other, buy stocks and other financial instruments, and access financial advice. There are many different fintech companies that offer unique services to their customers. Here are a few notable examples:
Robinhood (stock trading)
Robinhood is one of many apps that are taking offdigital stock trading, meaning it distills the traditional broker-client relationship into an easily accessible online interaction. Robinhood's founders saw that most investment platforms were charging their customers high fees even though it didn't cost much to execute trades. In response, the company launched its free trading platform that allows smartphone users to trade stocks more freely. The service offers commission-free stock trading and exchange-traded funds; it has also recently started offering cryptocurrency trading to its users.
Venmo (the P2P payment)
Venmo is a popular example of a P2P payment source or service that allows users to quickly transact through instant digital file sharing. Companies like Venmo make it easy for people to initiate free transactions with their friends and family or make payments to businesses. Most notably, the company frames its transactions through a social feed, allowing payments to be shared and viewed with a list of friends. Services like Venmo have taken advantage of an increasingly cashless society through smart devices and social networks.
Klarna (e-commerce)
Klarna is a fintech company that provides payment services for e-commerce, or virtually any activity that involves a digital transaction. In concrete terms, Klarna has direct payments, payment options after delivery, payments for online stores and installment plans. The service is a regulated bank that allows customers to purchase on a 'buy now, pay later' model, purchasing products on interest-free or low repayment plans. Splitting a transaction in this way allows consumers to pay for a product over time rather than all at once.
Wealthfront (asset management)
The prosperity frontis a fintech robo-advisor: a fintech platform that helps its users by automatically investing their money and providing financial advice based on their goals. Robo-advisors use computer algorithms and special software to build an investment portfolio without the involvement of a financial advisor. The software automatically invests and rebalances investments based on a user's needs, goals and market conditions. In particular, Wealthfront offers automatic rebalancing, daily tax loss harvesting and other services rooted in automated investing, which investors can benefit from by making their investments easier to manage without traditional manual intervention.
Square (business payments)
Square is a sales and payment service for businesses, meaning businesses can accept credit cards on a smartphone, tablet or terminal. Before companies like Square, small businesses sometimes had trouble accepting credit cards due to high costs and difficult-to-use equipment. Square offers an easy-to-use process that allows businesses to accept payments, print receipts, and offer virtual gift cards to their customers.
Learning FinTech (and the five skills you need)
FinTech is a growing field that offers a variety of job opportunities for people with relevant experience. Are you interested in a career in fintech? Here are a few ways to learn important industry basics, plus some key skills you can hone right away.
Educational paths in FinTech
FinTech-bootcamps
FinTech bootcamps give students the space to quickly get started with fintech. Boot camps provide structured learning opportunities and hands-on experience for students interested in the field. Boot camps are both personal and intensive: they offer rigorous curricula that simulate real-world experiences, but they can often be completed remotely and in a schedule-friendly manner.Columbia Engineering FinTech Bootcamp, for example, provides a foundation for anyone looking to get started in fintech in just 24 weeks, including flexible modules that cover everything from financial analysis to algorithmic trading and blockchain transactions.
Diplomas with a focus on FinTech
When it comes to traditional degrees, more colleges are offering themdegrees with a focus on fintechas the field grows. These programs allow students to learn the ins and outs of a traditional finance major while developing the technical skills that could be potentially valuable in fintech. These programs typically last 2 to 4 years, depending on the program and the number of classes a student can take at a time.
Self-taught FinTech capabilities
There are also many resources available for those who want to learn fintech on their own, includingfree online courses, educational multimedia and apps and digital guides. Self-study options are ideal for those who prefer a fully autonomous learning structure that offers the opportunity to learn the basics of the sector, along with personal organization and time management skills.
Key FinTech skills
- Programming
- Cybersecurity
- AI/ML and data science
- Blockchain
Programming
The vast majority of fintech entities use mobile applications or websites to expand their reach and increase consumer value. Programmers and software developers are primarily responsible for building and maintaining these fintech websites and applications, designing them to be secure, efficient, and navigable. Popular fintech programming languages include Java, C++, Python and Ruby.
Cybersecurity
Most modern fintech companies are data-driven and often connected to large digital networks that offer users new experiences and opportunities. This framework provides great value, but can also increase the risk of cyber attacks and security breaches. Therefore, aspiring fintech professionals can benefit from working on cybersecurity knowledge; explores how it is used to protect fintech companies from hackers and other cyber threats.
AI/ML and data science
Today's fintech users generate a lot of data, and many fintech companies use this data to personalize their services and provide added value. Big data can be used to make financial predictions based on customer behavior; manage finances for clients and drive critical insights that enable stronger, more informed decision-making. For this reason, aspiring fintech professionals will want to have a basic understanding of data analytics as it will likely play a role in their long-term careers.
Specifically, artificial intelligence (AI) and machine learning (ML) algorithms are regularly used to process and analyze large amounts of data; By doing this, they enable companies to generate actionable insights. AI/ML algorithms can reduce risk, increase returns, automate processes and make predictions for the future – and as a result, they represent a valuable data-centric skill for anyone looking to work in fintech.
Blockchain
As cryptocurrency continues to become a prominent fintech sector, the need forblockchain-expertisehas grown to follow suit. It helps aspiring fintech professionals have at least a working knowledge of the underlying architecture and cryptographic features of blockchain – as well as its various applications and implications in the broad trading, lending and reconciliation of currencies around the world. Blockchain-based cryptocurrency is expected to disrupt the financial sector in the coming years, so having these types of skills can make the transition easier.
FinTech careers, job prospects and salaries
FinTech has led to a growing number of job opportunities for people interested in the field. Here is a brief overview of some such careers:
Financial analyst
Financial analysts help companies make decisions that can lead to stronger future returns. They apply high-level critical thinking to assess the performance of stocks, bonds and other financial instruments. Currently, the job outlook for financial analysts is good. According toLabor Statistics Bureau(BLS), the field is expected to grow 5 percent through 2029, and the average salary for a financial analyst was $83,660 in 2020.
Information security analyst
Information security analysts plan and implement security initiatives to protect computer systems and data from unauthorized access – a must for today's fintech companies. The job opportunities for information security analysts are incredibly high. According to the BLS, the job outlook for information security analysts is expected to grow31 procent in 2029, which is significantly faster than the average for all industrial sectors. The average salary for information security analysts in 2020 was $103,590 – also much higher than the national average.
For more information, see our latest guide onhow to become an information security analyst.
Blockchain engineer
Blockchain companies and applications are a growing part of the fintech ecosystem. Blockchain engineers design, build and maintain decentralized blockchain applications such as cryptocurrency exchanges, lending applications and voting platforms. According toCarrièreOnestopThe average salary for a blockchain engineer in 2020 was $92,870, and the number of jobs in this field is expected to grow 6 percent by 2029.
In the meantime you can also discussour guide to the best fintech careersif you want to know more about other opportunities in the field.
Frequently asked questions about FinTech
What skills do you need for fintech?
There are a wide range of jobs available in fintech, and many of them are built around skills in programming, cybersecurity, AI/ML, data analytics and blockchain. Completing an online fintech bootcamp is a good starting point for learning such skills on your journey to a new career.
Is er PayPal-fintech?
In,PayPal is a fintech company. In fact, PayPal is one of the largest fintech companies in the world, and it was also one of the first companies to enter this sector. The company is a global giant that has changed how many of us shop online.
What is the difference between FinTechs and banks?
FinTechs and the bankoffer various services to their customers. Traditional banks are institutions that typically consist of both physical and physical locations and digital entities, and are licensed to collect deposits and use them to fund loans to customers. FinTech, on the other hand, broadly refers to any technology that aims to facilitate and streamline digital transactions. Fintech has been adopted by countless companies to improve their financial services and, in many cases, make their products more accessible. Typically, fintech companies hold customers' money in a bank account and provide additional services and value to the customer.
Will FinTech replace banks?
At this point, it is unclear whether fintech resources will one day completely replace brick-and-mortar banks. But if they do, they will likely be subject to the same government regulations as existing banks and will have to change the way they operate.
Do you need to know coding to work in FinTech?
Coding is not strictly necessary to get into fintech, but there are many software engineering and coding-related jobs available in the field. Having a strong knowledge of coding gives one a wider range of potential fintech work options.
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