Fintech 101: Core concepts for the future of banking
Everyday it feels like someone, somewhere has coined a new banking term. But as Australia continues to take big steps towards innovation, the average Aussie might feel left in the dark when it comes to understanding what’s in store for the future of banking. So to keep you in the loop with all the latest in fintech, we thought it might be worth getting the basics down first.
What is fintech?
Put simply, fintech stands for ‘financial technology’ and can refer to any technology that is used in the finance industry to provide products and services. Just remember that fintech usually refers to newer, innovative products and services. For example, your online banking app? Old news. Wearable payment technologies? Headlining stuff.
So what is considered fintech?
Fintech covers all financial services, which means technologies like payment innovation, investing, foreign exchange, cryptocurrency, chatbots, robo-advice all fall under the fintech umbrella.
The need-to-knows of fintech jargon
While we don’t expect to turn you into a fintech expert overnight, there are a few terms you’ll want to get on top of if you’re interested in the fintech space. From finance robots to rings that do more than accessorise an outfit, here is a quick rundown of some of the most common fintech jargon.
Artificial Intelligence (AI)
Artificial intelligence (AI) is a type of intelligence that is produced by machines and technology. These forms of technology are designed to react and work like human beings. AI is already making a name for itself in the fintech sphere through chatbots and robo advice.
Biometric authentication means using parts of the body as a form of identification, like your voice or face. At the moment, this is used mainly as a secure way of logging into apps or services, but experts are predicting that this type of technology will soon hit the checkout, where Aussies will be able to make payments through their fingerprint or facial recognition.
Blockchain is software which provides a secure record for financial transactions made with cryptocurrency, like Bitcoin. It allows digital information to be shared but not copied and is hosted on a number of different computers at once, which makes it very secure, but publicly accessible at the same time.
Rather than speaking to a person about a banking enquiry or issue, more and more Aussies are turning to chatbots instead through their smartphone or laptop. A chatbot is a digital messaging service similar to Facebook Messenger, that’s run through AI. Chatbots have already been picked up by big bank, NAB and UBank.
Comprehensive Credit Reporting (CCR)
While only coming into effect in July this year, CCR is set to change the way lending is conducted in Australia. With CCR a lender must take into account your entire credit history, both positive and negative, before giving you a personalised rate that best reflects your trustworthiness as a borrower.
Crowdfunding involves pre-funding or funding a product or service through investments by prospective customers through services like GoFundMe or Kickstarter. Many fintechs use crowdfunding to kickstart the service or product.
Cryptocurrency refers to encrypted digital currencies and can be used to make purchases online, invest and make transfers. ‘Bitcoin’ is one of the most famous types of cryptocurrency and is being used as a popular form of investment.
A digital wallet stores all your personal payment information and passwords for numerous payment methods and websites. However, digital wallets can also be used alongside mobile payment systems, meaning consumers can make purchases with their smartphones. It could also mean you never missing out on a discount again, as digital wallets can be used to store loyalty card information and coupon codes as well.
Similar to fintech, insurtech refers to the growing technologies that are set to shake up the insurance world and replace old school services. When we talk about insurtech, it might refer to smart technologies that can help reduce your home insurance premium or startups that aim to change the way customers get their insurance premiums.
New Payments Platform (NPP)
The NPP is a game changer for all the Aussies constantly having to transfer their mates money for lunch or dinner. This technology allows Aussies to instantly transfer cash between participating banks, and means you don’t need a BSB and account number - it can be set up with something as simple as a phone number.
Open banking essentially advocates for a consumer’s right to have access to all their past data collected by banks and financial institutions, to help them make better decisions about their money. Another big benefit is that Open Banking should make switching financial providers easier, giving Aussies the opportunity to get the best possible deal when it comes to their personal finance.
Similar to banking chatbots, robo advice provides algorithm-based investment advice, formulated to address your specific financial situation. This is done by collecting your information through an online form or questionnaire, before then offering advice on the best place to invest your money, based on your level of risk.
These are not like your traditional bank, as they are entirely online, without any branches. Neo banks are trying to reinvent the way we do our banking by using new technology that streamlines or updates old systems. In October last year, Australia got its first ever neo bank, Xinja which relied on crowdfunding for its first round of investment.
Paying with cash has become even more old school, thanks to the rise in popularity of wearable payment technology. Wearables can be items of clothing, like watches, wristbands and rings that can used to make payments, without having to reach for your debit card, just tap and go!
If you’d like to learn more about what the future of Australian banking might look like, you can check out our fintech hub for more info!