Fintech. You’ve heard the phrase in the news, and throughout the tech world, as it dominates venture capital fundraising and disrupts the way the financial markets do business.
But what is fintech? And even more importantly, how does it relate to you and your industry? How will it transform future challenges and possibilities? Keep reading, as we explore some of these questions and some possible answers.
How is fintech defined?
Even the experts have a hard time defining fintech! The term is an abbreviation for “financial technology” – a broad brush that encompasses a growing number of options in online banking, cryptocurrencies and electronic payment and services. The dictionary defines fintech as “computer programs and other technology used to support or enable banking and financial services.” Inc.com has described fintech as a revolution “by entrepreneurs for entrepreneurs,” as it transforms the options for start-up funding.
So what are some examples? Glad you asked. The ad for an app that lets you apply for a home loan from your phone is fintech. So is the system that enables you to electronically send money to your pet sitter, the website that invites you to invest in a new business idea and the algorithm that allows a robot to guide your financial investments any time of day.
Fintech definitions will continue to evolve as the technology itself adapts and moves into even more areas of our lives.
How did we get here?
A more creative approach to financial services took hold about ten years ago, when the world’s banks and financial networks shook and public trust in their operations dissolved. It has quickly evolved as people around the world become accustomed to the speed of technology, and the way it simplifies their lives.
Perhaps surprisingly, fintech’s popularity is not limited to the United States, and not even to developed parts of the world. The use of fintech, like electronic payment apps, has skyrocketed in the world’s most populous cities and in areas where people do not have easy access to bank accounts.
Where are we going?
Experts say that fintech is evolving the financial system to empower the entities that have a lot of data, which can be used to expand networks, increase efficiency, and create new possibilities.
The fast growth in financial technologies does not come without risk, though: Fintech products highlight the need for cybersecurity and complicate the regulatory framework that has governed financial markets. Governments around the country – and around the world – have followed diverse paths to regulate fintech companies and products.
What is Arizona’s role?
Arizona has been a national leader in the preparation and planning for fintech industries. In 2018, we were the first in the United States to launch a fintech “sandbox” program. These sandbox structures have been implemented in major tech hubs globally, and they create a mechanism for fintech companies to test their new products without meeting all the regulations required of fully functioning financial operations. The Arizona Attorney General’s Office oversees the program and its participants in Arizona.
Three companies are currently included in Arizona’s fintech sandbox, and they are testing products for direct payment systems, personalized savings & credit opportunities and blockchain technologies.
Representative Jeff Weninger, a state lawmaker from Chandler, sponsored the fintech sandbox legislation last year. He said the program is an important way to help a wide range of inventive entities – small companies trying to get started, and large companies seeking to try new services. “Ultimately, you need common-sense regulations,” he said in a legislative hearing last year. “But when you regulate an industry before it actually develops, you morph how it’s going to grow.”
There is no end in sight for new fintech products and developments, and state leaders like Representative Weninger say they will keep working to ensure Arizona is at the heart of future fintech progress. The legislature is considering more legislation that adjusts the fintech sandbox to address challenges that have come up while companies sign up to participate, and Representative Weninger says he’s glad for the chance to tell a newly elected group of state legislators about the importance of Arizona’s leadership in this industry.