Explainer -  What is “fintech” and how is it changing financial products?

FintechThe word “fintech” is simply a combination of the words “financial” and “technology”. It describes the use of technology to deliver financial services and products to consumers. This could be in the areas of banking, insurance, investing – anything that relates to finance.  Although it’s a relatively new word, fintech is actually nothing new. Technology has always changed the financial industry. However the internet, combined with the widespread use of devices like smartphones and tablets, means the speed of this change has accelerated greatly in recent years.

Examples of fintech

Fintech is changing the world of finance for consumers in a myriad of ways. For example, you can now open a bank account over the internet, without physically visiting a bank. You can link the account to your smartphone and use it to monitor your transactions. You can even turn your smartphone into a “digital wallet” and use it to pay for things using money in your account. 

Fintech is also rapidly changing the insurance and investment industries. Car insurance providers now sell “telematics-based” insurance where your driving is monitored using data collected via your smartphone or a “black box” fitted in your car. This data can then be used to determine how much you pay for your insurance policy. In the future, it may be possible to buy insurance on a short-term or “pay as you go” basis.

Advances in technology means consumers can also invest over the internet on an “execution only” basis without any face-to-face interaction. In time, you may be able to get automated financial advice or “robo advice” with little or no human interaction.

Potential benefits

  • Speed and convenience
    Fintech products tend to be delivered online and so are easier and quicker for consumers to access.
  • Greater choice
    Consumers benefit from a greater choice of products and services because they can be bought remotely, regardless of location.
  • Cheaper deals
    Fintech companies may not need to invest money in a physical infrastructure like a branch network so may be able to offer cheaper deals to consumers.
  • More personalised products
    Technology allows fintech companies to collect and store more information on customers so they may be able to offer consumers more personalised products or services.

Potential risks

  • Unclear rights
    Fintech companies may be new to the financial industry and use different business models to traditional providers. This can make it harder to ascertain which ones are regulated, and what your rights are if something goes wrong.
  • Making a rash decision
    Financial products that are bought instantly online without ever meeting anyone face-to-face may make it easier for consumers to make quick, uninformed decisions.
  • Technology-based risks
    Financial products bought online may leave you more exposed to technology-based risks. For example, your personal data could be mis-used or you could fall victim to cybercrime.
  • Financial exclusion
    While technology increases choice and access for most consumers, it can exclude those who don’t know how to use the internet or devices like computers, smartphones and tablets.

Find out more

The Central Bank of Ireland has published a Discussion Paper on this topic. The paper seeks views as to whether consumers are adequately protected from new risks arising from the digitalisation of financial services. The paper is open for comment until 27 October 2017.

Read the Discussion Paper and/or submit your views.

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