What is fintech? | CNBC Explains

Summary

This video explores the rapidly growing fintech industry, which encompasses a wide range of technologies like cashless payments, crowdfunding, robo-advisors, and virtual currencies. It highlights how fintech is transforming financial services globally, especially in countries like Kenya with mobile banking systems like M-Pesa. Major companies and startups alike are driving this revolution, with billions invested since 2010. While fintech brings many benefits, it also poses risks, such as cybersecurity threats and regulatory challenges. The video emphasizes fintech's potential and ongoing impact on consumers, businesses, and traditional finance.

Takeaways

• 📱 Fintech refers to financial technology, encompassing a wide range of products, technologies, and business models.
• 💳 Everyday activities like paying with a phone, using Venmo, or donating via Kickstarter are all examples of fintech.
• 🌍 Fintech is a global, multi-billion dollar industry that is rapidly changing how we pay, borrow, and manage money.
• 💼 Major companies like Apple and Alibaba are heavily investing in fintech, with products like Apple Pay and Alipay leading the way.
• 📈 Since 2010, nearly $100 billion has been invested in the fintech sector, with a significant surge in 2017.
• 👥 One out of three people in 20 major economies use at least two fintech services, with China and India leading in adoption.
• 📱 Fintech is bridging the gap for nearly two billion people worldwide who lack access to traditional banking services.
• 🇰🇪 Kenya’s M-Pesa mobile banking system is a prime example of fintech improving lives, helping 96% of households access banking and lifting 2% out of poverty.
• 🤖 Robo-advisors, using algorithms, are disrupting wealth management by offering automated financial planning at lower costs.
• ⚠️ Fintech also presents risks, including challenges with regulation, data privacy, and the potential instability of peer-to-peer lending platforms.

Q & A

What is fintech?

Fintech is short for financial technology, referring to a wide range of products, technologies, and business models that are transforming the financial services industry. This includes everything from cashless payments and crowdfunding platforms to robo-advisors and virtual currencies.

How does fintech impact the financial industry?

Fintech is disrupting traditional banking and finance by introducing innovative ways to pay, borrow, and manage money, such as mobile payments, peer-to-peer lending, and automated financial advice. It forces traditional financial institutions to adopt digital technologies.

What are some examples of fintech in everyday life?

Examples of fintech include using Apple Pay or Venmo for cashless payments, transferring money through apps, donating to crowdfunding campaigns like Kickstarter, or using robo-advisors for financial planning.

Why is fintech receiving so much investment?

Fintech investment has surged because consumers are rapidly adopting digital financial services. Startups focusing on payments and lending have received the majority of the nearly $100 billion invested in fintech since 2010.

Which countries are leading the way in fintech adoption?

China and India are at the forefront of fintech adoption, with more than half of consumers using fintech services for money transfers, financial planning, borrowing, and insurance.

How has fintech benefited people without access to traditional banking services?

Fintech has filled a gap for the nearly two billion people worldwide without bank accounts. Services like Kenya’s M-Pesa allow users to transfer money, pay bills, and take out loans via mobile phones, significantly improving financial inclusion.

What is M-Pesa, and how has it impacted Kenya?

M-Pesa is a mobile banking system in Kenya that allows users to transfer money, pay bills, and take out loans directly through their phones. It is used by 96% of Kenyan households and has helped lift roughly 2% of households out of extreme poverty.

What are robo-advisors, and why are they popular?

Robo-advisors are automated financial planning services powered by algorithms. They provide affordable, 24/7 investment management, making them an attractive alternative to traditional wealth managers. This has led to billions of dollars being managed by robo-advisors.

What are some risks associated with fintech?

Fintech comes with risks such as regulatory challenges and data privacy concerns. Peer-to-peer lending platforms, for instance, might not be required to have as much capital as traditional banks, increasing the risk of defaults. Additionally, the digital nature of fintech increases the vulnerability to cyber attacks.

How are regulators responding to the rapid growth of fintech?

Regulators have struggled to keep up with the fast-paced innovations in fintech. As digital financial services grow, regulators face challenges in ensuring adequate oversight, particularly in areas like peer-to-peer lending and data privacy.

Outlines

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📱 Fintech: A Global Revolution

Fintech, short for financial technology, encompasses a wide array of products and technologies, transforming the financial services industry. From cashless payments to crowdfunding platforms and virtual currencies, fintech is reshaping the way economies operate worldwide. Whether donating through Kickstarter or transferring money via Venmo, you're engaging with fintech. At a major fintech conference in Amsterdam, hundreds of companies are innovating how we pay and borrow money, with global investment in fintech reaching nearly $100 billion since 2010.

💸 Fintech Investment on the Rise

Fintech investment surged 18% in 2017, with startups focusing on payment and lending technologies attracting the most funding. Major corporations like Apple and Alibaba have also embraced fintech with services like Apple Pay and Alipay. The rapid adoption of fintech by consumers is driving this investment, with one in three people across 20 major economies using at least two fintech services in the last six months. Leading the charge are China and India, where over half of consumers engage with fintech services such as money transfers and financial planning.

🌍 Financial Inclusion through Fintech

Fintech is helping bridge the gap for the two billion people worldwide who lack access to traditional banking. With just a phone, individuals can now access loans or insurance. Kenya’s M-Pesa mobile banking system exemplifies this shift, allowing users to transfer money, pay bills, and take out loans directly from their mobile devices. Today, 96% of Kenyan households use M-Pesa, and it has been credited with lifting 2% of households out of extreme poverty.

🤖 The Rise of Robo-Advisors

Traditional financial institutions are being challenged by fintech innovations, particularly in wealth management. Robo-advisors, which are automated financial planning services powered by advanced algorithms, offer 24/7 services at a lower cost compared to traditional asset managers. This has led to billions of dollars being managed by these digital advisors, reshaping the wealth management landscape.

⚠️ Risks and Challenges in Fintech

While fintech offers great potential, it also comes with significant risks. Peer-to-peer lending platforms, for instance, allow individuals to lend and borrow without a bank intermediary, but they may not be subject to the same regulations as traditional banks, leading to increased risk for both consumers and companies. Data privacy and the risk of cyber attacks are also growing concerns as financial services become increasingly digital. Regulators face the challenge of keeping pace with rapid fintech innovation.

📈 Fintech: A Business Opportunity

Despite the risks, fintech represents a major business opportunity, as companies and consumers alike are driving its growth. The sector is more than just a buzzword; it’s reshaping industries and creating new business models. As the video host signs off, viewers are encouraged to check out related videos, including those covering blockchain and cashless technologies.

Keywords

💡Fintech

Fintech, short for financial technology, refers to the use of technology to improve and automate financial services. It encompasses a broad range of products, technologies, and business models, including cashless payments, robo-advisors, and virtual currencies. In the video, fintech is portrayed as a multi-billion dollar industry transforming the global financial services sector, providing innovative solutions for both consumers and businesses.

💡Cashless payments

Cashless payments are transactions made without physical money, typically through mobile apps or digital platforms. The video mentions services like Apple Pay and Alipay as examples of cashless payment systems. These technologies are part of the broader fintech revolution, allowing consumers to make payments conveniently using their phones.

💡Crowdfunding platforms

Crowdfunding platforms enable individuals or organizations to raise money from a large group of people, typically via the internet. The video references Kickstarter as an example, where fintech plays a key role in allowing users to donate money to various causes or projects, making it easier to fund new ideas and businesses.

💡Robo-advisors

Robo-advisors are automated financial planning services that use algorithms to provide investment advice and portfolio management. The video highlights how these digital advisors compete with traditional wealth managers by offering more affordable and accessible services, managing billions of dollars in assets.

💡Virtual currencies

Virtual currencies are digital forms of money that operate without a central bank. These include cryptocurrencies like Bitcoin, which are part of the fintech ecosystem. While the video doesn’t mention specific currencies, it underscores fintech’s role in creating new forms of financial exchange beyond traditional banking.

💡Peer-to-peer lending

Peer-to-peer lending platforms allow individuals to borrow and lend money directly, without going through traditional financial institutions like banks. The video discusses the risks associated with these platforms, as they often have fewer regulatory safeguards compared to banks, which can lead to greater risk for both borrowers and lenders.

💡Mobile banking

Mobile banking refers to the ability to conduct banking activities through a mobile phone, including transferring money and managing accounts. The video gives the example of M-Pesa, a pioneering mobile banking system in Kenya, which has provided financial access to millions of people who previously lacked traditional banking services.

💡M-Pesa

M-Pesa is a mobile banking service in Kenya that allows users to transfer money, pay bills, and take out loans using their phones. The video highlights M-Pesa's success, with 96% of Kenyan households using the service, and it has played a significant role in lifting households out of poverty by providing financial access to underserved populations.

💡Cybersecurity

Cybersecurity involves protecting digital systems, including financial services, from unauthorized access, attacks, or data breaches. The video notes that as fintech expands, cybersecurity becomes a growing concern, especially with more financial services going digital, which increases the risk of cyber attacks.

💡Global investment in fintech

Global investment in fintech refers to the money invested in fintech startups and businesses worldwide. The video states that since 2010, nearly $100 billion has been invested in fintech, with a significant portion going to companies focused on payment and lending technologies. This highlights the confidence investors have in the industry's potential to disrupt traditional financial models.

Highlights

Fintech, short for financial technology, is a multi-billion dollar industry that includes a wide range of products, technologies, and business models.

Fintech covers everything from cashless payments, crowdfunding platforms, and robo-advisors to virtual currencies.

Every time you use services like Kickstarter, Venmo, or any app-based payment service, you're participating in the fintech ecosystem.

At a fintech conference in Amsterdam, hundreds of companies are working to disrupt traditional banking and finance.

Global fintech investment has reached nearly $100 billion since 2010, with an 18% surge in 2017 alone.

Startups focused on payment and lending technologies have attracted the majority of fintech investments.

Major companies like Apple and Alibaba are heavily involved in fintech, with Apple Pay and Alipay being prime examples.

Consumers are rapidly adopting fintech, with 1 in 3 people across 20 major economies using at least two fintech services in the last six months.

China and India lead fintech adoption, with over half of their populations using services like money transfers, borrowing, and financial planning.

Fintech has enabled nearly 2 billion people globally, who lack traditional banking services, to access financial tools using just their phones.

Kenya's M-Pesa, a mobile banking system, has revolutionized the way people access money, pay bills, and take out loans, with 96% of households using it.

M-Pesa is credited with lifting roughly 2% of Kenyan households out of extreme poverty.

Robo-advisors, which use algorithms for automated financial planning, are providing more affordable options and have billions of dollars under management.

Regulation struggles to keep up with fintech innovations, posing risks like insufficient safeguards in peer-to-peer lending platforms.

Data privacy and cybersecurity are growing concerns as financial services increasingly go digital, making fintech both an opportunity and a challenge.

Transcripts

If you’ve ever paid for something with your phone, transferred money using an app

or checked your bank statement online,

then you’re already part of a multi-billion dollar industry.

It’s called fintech, and it’s changing economies around the world.

Fintech is short for financial technology - seems simple, right?

Well, the term fintech includes a huge range of products, technologies, and business models

that are changing the financial services industry.

It refers to everything from cashless payments,

to crowdfunding platforms, to robo-advisors, to virtual currencies.

So every time you donate to someone’s Kickstarter campaign - that’s fintech.

Or if you transfer money to someone using Venmo - that’s also fintech.

And that’s just the beginning.

Here at a major fintech conference in Amsterdam, hundreds of companies are trying to

disrupt the banking and finance industries by changing the way we pay and borrow money.

And investors are buying it.

Global investment in the fintech sector has added up to nearly $100 billion since 2010.

In 2017 alone, fintech investment surged 18%.

Startups focusing on payment and lending technologies received the majority of those funds.

It’s not just startups that are getting into fintech.

Some of the world’s biggest companies from Apple to Alibaba are going big on it, too.

Just think of Apple Pay or Alipay.

One reason for all of this investment?

Consumers are adopting fintech - fast.

One out of every three people across 20 major economies

report using at least two fintech services in the last six months

China and India are leading the way with more than half of consumers

using services like money transfers, financial planning, borrowing and insurance.

Financial technology has filled a void for people around the world

who don’t have access to traditional banking services.

In fact, it’s estimated nearly two billion people worldwide are without bank accounts.

Now, thanks to fintech, all you need is your phone to take out a loan or insurance.

Take Kenya, which pioneered a mobile banking system called M-Pesa.

Kenyans access their M-Pesa accounts directly on their mobile phones

to transfer money, pay bills or take out loans.

Today, an estimated 96% of households in Kenya use M-Pesa

and one study found it has helped lift roughly 2% of Kenyan households out of extreme poverty.

The rise of fintech has forced traditional lenders, insurers and asset managers

to embrace new digital technologies.

For example, wealth managers now have to compete with robo-advisors -

which are automated financial planning services.

I mean talk about rise of the robots, right?

Thanks to high-tech algorithms, these services are available 24/7

and can be more affordable than traditional asset managers.

That helps explain why robo-advisors already have billions of dollars under management.

Like any growing industry, fintech isn’t without risks.

And some regulators have struggled to keep up with the fast pace of innovation.

Think of peer-to-peer lending platforms,

where individuals borrow and lend without going through a bank.

Compared to traditional banks, these services might not be required to

set aside as much money in case customers default on their loans.

This can be risky for companies and consumers.

Data privacy is another major concern.

As more financial services go digital, cyber attacks become a bigger risk.

The challenges facing financial technology are likely to grow as more and more businesses go digital.

But for many of the companies and consumers here - fintech is more than a buzzword.

It’s a big business opportunity.

Hey everyone, Elizabeth here. Thanks so much for tuning in.

Be sure to check out more of our videos over here

including one about blockchain and another where I talk to a company that's going cashless.

Let us know if you have any other ideas for videos in the comments section

and while you're there, subscribe to our channel.

See you later!