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As technology has been advancing swiftly over the past two decades, so has its merge into our everyday lives.

From computers to phones and now our wallets.

Financial technology or fintech has seen a 64 percent adoption rate across the globe.

The line is blurring between financial companies and tech startups as those in the North American tech industry continue to make products geared to financial service organizations.

Advanced technology has enabled companies to create low-cost, high-value, and data-driven solutions for customers.

Many of these are designed to simplify payment processes and operations.

According to PwC researchers, the biggest prize for fintech efforts is customers.

So, creating seamless experiences that keep customers coming back, again and again, will differentiate organizations that win in the fintech market from those who fail.

Thus, the ultimate goals in the industry are to create products that are:

  • Personalized
  • Convenient
  • Secure
  • Fast
  • Low-cost
  • Easy to use
  • Available 24/7

Although the capability has been around for some time, it has only been in the last several years that financial services companies have increased their investment in fintech capabilities.

Some speculate that it has been the threat of competition from the tech industry that caused financial companies to try and modernize their operations.

Regardless, the current marketplace has found a synergy between large financial organizations and technology companies.

Working together, these businesses appear to have found that collaboration allows them to capitalize on each other’s strengths and overcome weaknesses such as expanding into new markets or gaining knowledge.

Overview of fintech: What is it, why does it matter?

Fintech is an emerging sector that unites financial companies with technology ones.

The goals are to transform how financial companies operate, work together, and improve services and products for customers.

All sizes of companies can be considered fintech ones, from tech startups to mid-size businesses to large corporations.

If they are engaged in offering financial services or products through a tech platform, it’s fintech.

A study by PwC found that while about 47 percent of telecommunications and financial services companies have embedded fintech into their operating model, many are still at the development or pilot stage.

This puts them at risk of being left behind and losing their customers.

There are various technologies that have been useful to the rise of fintech, such as:

  • Artificial intelligence
  • Internet of Things
  • Cloud
  • Big data
  • 5G
  • Blockchain
  • Robotic automation
  • Voice technology

Many of these technologies are already being used by consumers in their homes and at the office.

Because they are already comfortable with it, using technology for financial services is an easy transition.

The COVID-19 pandemic saw customers become further entrenched in digital habits.

As businesses shut down and closed operations in response to the global health crisis, more and more people began shopping online, communicating with one another online, and the number of remote workplaces increased substantially.

As governments continue lockdowns in an effort to contain the virus, daily life has changed irrevocably.

It has become more digitized than ever. The PwC Consumer Insights Survey for 2020 found that 63 percent more consumers were shopping for groceries online, and 83 percent intended to continue using online grocery services after COVID-19.

Financial services and products have also been altered due to the pandemic.

Banks have been closed or reduced their hours so that customers looking for financial products or opportunities have been forced to go online.

As more time passes, fintech is losing its mystery and becoming seen by consumers as a safe and easy way to do their banking and pay for goods and services.

Key areas of fintech

In the fintech industry, there are many different sectors such as banking, wealth management/investing, trading, and payments that have seen significant growth and also have the capacity to be the most disruptive to traditional institutions.

These different areas are also ones that have the most impact on consumers.

1. Banking

The services that many traditional banks have been offering for years have largely gone digital.

From opening and managing saving accounts to borrowing money, Canadian financial institutions responded to customers’ desire for better banking options by investing in technology that makes everyday banking accessible online.

These options include online banking and apps to help customers track their money wherever they are.

By using advanced technology and various data collection methods, digital lenders have been able to offer customers new ways to borrow money.

The attraction of digital lending for consumers is often the ease and speed of the application and approval process.

Applications are made online, and lenders approve the loan within days.

Borrowers can apply for loans to cover a variety of expenses, including student loans, car loans and even personal lines of credit.

2. Wealth management/investing

Technology has overturned traditional investing and wealth management processes.

Automated robo-advisors are helping investors find new opportunities and new ways to manage their money.

Through the use of algorithms, robo-advisors can gauge risk tolerance and offer customers the convenience of managing a portfolio from a distance.

Robo-advisors can customize the investing experience by connecting individual users with investment options that fit their lifestyle or values, such as helping socially-conscious investors find investing opportunities with socially aware organizations.

Customers who use online platforms to help them make decisions about investing, retirement, etc., are benefiting from the assistance of a robo-advisor.

The attraction of using them is their low-cost, round-the-clock accessibility and the potential to get started with less capital.

Fintech solutions of wealth management and investing are targeted mainly at younger consumers or middle class consumers.

Traditional wealth managers continue to focus on customers with a significant amount of money to manage.

3. Payments

Fintech’s payment sector can be divided into three main areas:

  • Person-to-person – refers to payments that customers make to other individuals. For example, e-transfers can be used when people sell and buy things from sites like Craigslist or Facebook Marketplace. Fintech can also be used in the freelance or gig economy to pay temp workers when they complete a task. Sites like PayPal or Square are often used for this type of transaction.
  • In-store retail – The rise of mobile wallets and payment apps like Apple Pay or Google Pay falls under the in-store retail payment sector. These payment methods often use near-field communication(NFC) technology, QR codes, or barcodes for transactions.
  • Debit/credit transactions – Whenever a customer uses a debit or credit card to pay for something either in the store or online, it involves a complex tech process that seamlessly approves the purchase within seconds.

4. Trading

The ability of fintech to disrupt traditional industries can be seen in its impact on trading.

Before its development, trading was only something that those with expertise could engage in as there was substantial knowledge, strategy, and skill required.

However, consumers can now use trading apps that have unlocked the opportunity for anyone to open an account.

Opening up trading to anyone with a digital account has levelled the playing field, but it also comes with some risk as those who engage in trading without a complete understanding of how it works stand to lose a lot of money.

Although there still is some competition between financial institutions and tech startups, cooperation has become more of the norm in the fintech industry.

Large banking institutions have started to seek out the knowledge and cutting-edge skills available in the tech industry.

For example, TD Bank Group has set aside $3.5 million to help startups with patent applications, according to Deloitte.

Other banks have been partnering with various tech companies to offer automated bill payment or invoice processing to customers and businesses.

It all seems to come down to keeping the customer happy, which comes from a combination of engagement and convenience.

Top fintech companies North and South of the border

As the fintech sector continues to grow and develop, some companies have already made a name for themselves.

Many of these organizations offer products or services to consumers in the key sectors of banking, trading, wealth management, and payments.

Banking

Acorns – Based in California, Acorns promotes itself as a way to help customers save money. By connecting to users’ accounts, it transfers small amounts of money for every purchase or payment made from the account. To further their banking options, Acorns also has an investment option for customers who use the app.

Northone – Promotes itself as the digital banking solution for freelancers and small businesses. While it was only launched a couple of years ago, it has over 190,000 users.

Trading

Robinhood – Based in California, Robinhood founders designed a trading app that allows users to buy and sell stocks, ETFs, options, and even cryptocurrency while slashing commissions charged to $0. They have been seen as empowering users with access to trading options that were previously unavailable. The company has been estimated to be worth about $7.6 B.

Canalyst – Headquartered in Vancouver, Canalyst provides financial analysis for fintech users. Using their financial expertise and data, they offer forecast models for over 4,000 securities in Canada and the U.S.

Wealth management/Investing

SoFi – What began as an app to help students refinance their loan debt has now boasts a full suite of financial products, including an automated investing platform. With the app, novice investors can buy and sell stocks and there is no minimum to get started. SoFi also offers personal loans, mortgages, insurance and banking accounts. It is said to be worth $4.8B with 850,000 users.

Wealthsimple Invest – The robo-investing platform can be honed to your investment type: Conservative, balanced, or growth. There is no minimum to opening an account and the app offers various investing options including RRSP, RESP, and TFSA. The Toronto-based company also offers Canada’s only $0 commission trading platform, Wealthsimple Trade.

Payments

Stripe – Worth about $35B, Stripe offers payment services for online businesses and has also started offering lending services for customers. According to Insider, many large companies like Google, Amazon and Microsoft use Stripe. Interac – One of the biggest and most trusted fintech companies in Canada, Interac allows customers to use their bank cards for in-store payments. The company has been around for over two decades and is seen as an essential service for Canadians. In 2019, Interac logged 486 million transactions, according to the Financial Post.

The Future of Fintech

Although fintech was already a robust industry before COVID-19, the global pandemic has rapidly increased consumer fintech services and product adoption.

As a result, the fintech sector faces a similar future as other markets struggling through the pandemic.

The popularity of fintech has been rooted in changing consumer behaviour and expectation.

Customers are no longer patient enough to wait in line at the banks when they can easily access their accounts online to make payments, transfer money, etc.

Fintech solutions have expanded to help customers access loans and mortgages quickly, and allowing younger investors the opportunity to develop a wealth portfolio and even get into the trading market.

There is still plenty of room to grow for fintech as in North America the adoption rate sits around the 50 percent mark.

Like in many other sectors, fintech companies will need to weather the economic disruption caused by COVID-19.

This could mean a dark short-term future with a brighter one to come in a few years, according to Jim Marous of The Financial Brand.

He reports that funding for fintech has dropped to 2017 levels.

Marous notes that retail sales have also dropped, which will negatively impact the payments sector.

Fintech companies in the lending and banking sector may also have a tough time ahead as customers default on loans and miss payments due to a loss of income.

However, those in the investing and trading sector of fintech may actually see an uptick, according to Marous’s article.

Many people who have suffered financial loss due to the pandemic may be looking for ways to build their wealth.

The ease of use and accessibility of investing and trading apps will be an attraction for these consumers.

With its flexibility, adaptability, and capability, fintech has the potential to weather the pandemic storm better than other industries.

As consumers opt for more touchless and digital options to handling their finances, a University of Cambridge report found that fintech companies actually saw an increase in transactions in the first part of 2020.

However, the report notes that investment into fintech innovation has dropped off since global lockdowns began.

Yet, there is hope for a strong future as many fintech businesses have responded to COVID by altering their products and services to fit the changing market need.

Undoubtedly, the industry will continue to capitalize on these benefits as they increase the opportunity and accessibility for everyday people to do more with their money.


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Chandra Philip-Lye

Chandra is a former journalist turned content creator with over 15 years of professional experience. Throughout her career, she has worked with a variety of media platforms including print, television and online. You can see more of her work at: http://chandralye.pressfolios.com/

A Beginner’s Guide to Fintech
The line is blurring between financial companies and tech startups as those in the North American tech industry continue to make products geared to financial service organizations.