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Technology • October 07, 2024

What is Fintech? A Guide for Investors

Hoxton Blog • What is Fintech? A Guide for Investors

  • Technology

The term "fintech" is everywhere these days, but many traditional investors and those less familiar with technology might still wonder what it truly means. Like many aspects of investing and financial services, there can be a lot of grey area when looking for the correct answer.

In this article, we’ll explain what a fintech company is and look at some of the different categories that fit into the broader sector. We'll also highlight a real world example of Hoxton Wealth is embracing fintech to enhance client experiences.

What is Fintech?

Fintech is short for financial technology, and it refers to the innovative use of technology to deliver financial services. It’s used as a catch-all term for a wide range of applications, from mobile banking and payment apps to investment platforms and cryptocurrency exchanges. The goal of fintech is to make financial services more accessible, efficient, and user-friendly.

Fintech is transforming the financial landscape by offering new tools and services that were previously impossible. Understanding fintech is essential as it becomes increasingly integrated into all aspects of financial management.

The term is used in a couple of different ways. Firstly, it can describe the use of financial technology within an organisation. For example, the mobile banking app for your high street bank is an example of fintech within a traditional financial services institution.

It can also be used to describe a company which provides only financial technology services. For example, Paypal is a fintech company as it only provides digital payments services.

Examples of Fintech Uses

As you’d expect, fintech is everywhere. With more and more of our financial lives conducted purely online, fintech now touches almost every aspect of money. Here are some common real world examples:

  • Payments

    One of the most widespread applications of fintech is in the realm of payments. Companies like PayPal, Venmo, and Apple Pay have revolutionised how we transfer money and make purchases. It wasn’t all that long ago when we still used paper cheques at the supermarket or to pay the plumber!

    These payment platforms offer fast, secure, and convenient ways to handle transactions, whether you're paying for groceries or sending money to a friend.

  • Investment Apps

    Investment apps, such as Robinhood and eToro, have made it easier for individuals to invest in stocks, ETFs, and other assets. These apps often come with user-friendly interfaces and educational resources, making them ideal for beginners. Under this category are also so-called ‘robo-advisers’ which use simple quizzes and questionnaires to help guide investment decisions.

  • Personal Finance Apps

    Personal finance apps help users manage their budgets, track spending, and achieve their financial goals. These apps provide insights into spending habits and suggest ways to save money. 

    The Hoxton Wealth app is a great example of a fintech product within this category, offering personalised financial management tools to help clients stay on top of their finances.

  • Cryptocurrency

    Cryptocurrency is perhaps one of the most talked-about aspects of fintech. Platforms like Coinbase and Binance allow users to buy, sell, and store digital currencies such as Bitcoin and Ethereum. By its very nature, cryptocurrency is 100% digital.

    While cryptocurrencies investment opportunities that can appear very attractive, they also come with higher risks due to their volatility and the evolving regulatory landscape. Because of the lack of regulation (more on that below), it’s a sector that is also full of outright scams.

Regulation and Fintech

Governments all over the world have struggled in the past to keep up with the pace of innovation in the fintech sector. In some cases, like cryptocurrency, there is still a lack of regulatory clarity around the space, which poses a risk to investors. 

In other areas, such as payments and open banking, fintech providers have worked hand in hand with regulators to ensure that their services comply with banking regulations in the countries they operate in.

  • Open Banking

    Open banking is a regulatory framework that allows third-party financial service providers to access consumer banking information (with the consumer's consent) to offer tailored financial products. In simple terms, it allows you to view the banking data from your accounts via a third party app.

    For example, the ability to see your bank account balance in the Hoxton Wealth app is facilitated by open banking technology. 

    Open banking has led to the development of a wide range of new financial services, from budgeting tools to personalised investment advice. Open banking is heavily regulated, ensuring that consumer data is protected.

  • Unregulated Fintech

    While many areas of fintech are highly regulated, like banking, it’s important to understand that some sectors are not. As mentioned, cryptocurrency is the most obvious example, with the lack of regulation meaning there are far fewer protections for investors.

    There are also certain payment providers or online ‘banks’ which do not fall under the typical regulatory framework. Before using any fintech service, you should be sure to check how and where the company is regulated, and what this means for your consumer protections. 

    This is where the right advice can be invaluable. At Hoxton Wealth we take a pragmatic approach to fintech exposure, ensuring our clients have access to the best that the latest technology has to offer, without exposing them to undue risk.

The Potential Future of Fintech

The benefits of fintech are only just starting to become unlocked. The past decade has seen vast improvements in the connectivity of financial data and the ability to send and receive payments. The next wave of innovation appears to be the way that data is used to help make better financial decisions.

  • AI and Machine Learning

    AI has become a major buzzword lately, but behind the hype there are some real benefits to AI integration in fintech services. Underneath all that hype, AI and machine learning are essentially sophisticated pattern recognition tools. 

    With the ability to analyse vast amounts of data and spot patterns, there’s the potential for fintech providers to offer tools to help people manage their money better. For example, AI-driven budgeting programs could provide personalised spending analysis of actual data gathered through open banking. In the future, it may even be able to offer specific recommendations on ways you can save money on the things you buy regularly.

  • Continued Personalisation of Financial Products

    With access to more data comes the ability to personalise the financial products on offer. We are already seeing an element of this, but in the future it may be possible for financial products, such as loans, credit cards or even investments which are even more specifically tailored to an individual.

    There will be regulatory hurdles to clear for this to happen, but fintech offers the potential to customise the finance services sector in a way that simply isn’t possible without automation.

  • Hoxton Wealth's Approach

    At Hoxton Wealth, we recognize the importance of fintech in enhancing the financial services we offer to our clients. Our Hoxton Wealth app is the perfect example, designed to provide clients with a user-friendly platform to manage their investments, track their financial goals, and stay informed about market trends. 

    We believe in integrating the best of fintech with personalised financial advice to deliver the best, most accessible wealth management experience.

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How Fintech is the Financial Landscape

Fintech is more than just a buzzword, it’s a sector that is fundamentally changing the way financial services works, for the better. From payments and investments to personal finance management, fintech solutions offer a range of tools that can make managing your finances easier and more efficient. 

As fintech continues to evolve, traditional investors and those who are less tech-savvy can still take advantage of these innovations by staying informed and choosing services that combine the best of technology with trusted financial advice.

For those looking to explore the benefits of fintech while maintaining a personalised approach to wealth management, consider learning more about Hoxton Wealth’s approach and how our Hoxton Wealth app can support your financial goals.

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Hoxton Wealth

October 07, 2024

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