What is fintech?

Monzo, Bitcoin and Kickstarter are all fintech companies. They use technology to improve your financial services. But what is fintech and what does it mean for your money?

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Fintech is the shortened version of financial technology. It's used to describe businesses who compete with more traditional ones, such as banks.

Fintech used to describe the operating systems behind financial institutions like banks. Now, it's starting to represent companies that are disrupting traditional financial services. This includes mobile payments, transfers, loans, fundraising and investing.

What are some examples of fintech?

Monzo: This is one of the best known digital-only banks in the UK. Digital-only means it doesn't have a high street presence. It won the attention of customers because it gave real-time updates when they spent money. And the bright orange card helped too.

Kickstarter: This website helps entrepreneurs turn their business ideas into reality by crowdfunding. People can donate towards a new business idea or project. Their donation entitles them to follow the process of bringing the business to life.

Bitcoin: This is a form of cryptocurrency made in 2009. It's different to money issued by a country's government because it's issued by an independent authority. There are no physical bitcoins and it's not legal tender. But it has triggered the launch of other virtual currencies.

Nutmeg: This is an online investment management company. It's designed to make investing easy, without any technical jargon. Users can invest whether they have £500 or £5million.

Zopa: Launched in 2005, this was the first peer-to-peer lending company. These platforms let individuals loan each other money without a bank. Regulated by the Financial Conduct Authority, Prudential Regulation Authority (PRA) and the Peer-to-Peer Finance Association, Zopa launched a bank in December 2018.

Where did fintechs come from?

The financial crash of 2008 changed the way a lot of us felt about money. Consumer money was lost and bank's have spent years trying to rebuild trust. It's a perfect climate for new, smaller financial companies to offer something different.

Open Banking has helped to grow the fintech industry too. In 2016, the Competition and Markets Authority (CMA) released a report on the UK banking sector. With Open Banking, new providers like Revolut and Starling can compete with banks to offer financial services.

These providers offer products like traditional banks, but they don't have physical branches. With less staff, overheads or old systems, they can offer new services much faster.

All fintech banks with a current account are regulated by the FCA. They will also be part of the Financial Service Compensation Scheme (FSCS), which protects your money up to £85,000.

What does this mean for your money?

Fintech companies want to make managing your money easier and faster. This means their services will often be more accessible compared to older institutions. Technology will continue to improve and financial companies will want to adapt.

Most of us will use services from fintech companies every day without even thinking about it. For example, you can pick a new savings account, buy a plane ticket or even invest - all through your phone.

The growth of fintech should make for a more competitive industry. This should lead to better rates and services for your money and better ways of making it work for you.

Did you know?

A unicorn isn't just a mythical creature. In the financial world, a unicorn is a privately held startup valued at more than $1 billion. The term was coined in 2013 - it represents how rare it is to have such a successful business.

New bank accounts are offered all the time, so compare all of the best options to make sure you get the right one for you.