Digital financial tools are the new normal, with eight in ten consumers using a fintech product to send, manage, save, or invest their money, according to The Harris Poll. Yet, consumers may still wonder what is “fintech”?
That’s why, with summer in full swing, we are launching “Fintech Summer School” to answer your questions and demystify common fintech terms. Join us as leaders from FTA’s member companies dive into topics like:
- What is fintech?
- How do fintechs work with banks?
- What should I know before using a payment app to send money?
- What is earned wage access?
- How does fintech help small businesses?
Curious to learn more? Scroll down to explore our entire explainer series and share these videos with your network.
#1: Fintech is everything from paying bills, accessing credit, or using an app to invest.
What is fintech? Meredith Fuchs, Chief Legal Officer at Plaid, tackles the big question – what is financial technology, or fintech? In Meredith’s words, fintech refers to the digital tools people use to manage their financial lives, whether sending money, budgeting, or investing. Financial technology has the power to break down barriers and unlock financial services for Americans and businesses everywhere.
- #Powered by Fintech: Consumers used to go to their bank branch in person to bank or manage their money, often bringing a shoebox of financial documents to access financial services. Today, what used to take days or weeks can now take minutes or hours, saving people valuable time and money, thanks to financial technology.
- Key stat: 80% of Americans rely on fintech apps, and half of those people use them every single day.
- Why it matters: With fintech, Americans have seamless experiences with choice, control, and security in how they manage their money.
#2: Fintechs serve small businesses long ignored by legacy financial institutions.
Getting a small business loan shouldn’t be so hard. As Aditya Narula, General Manager of Lending and Credit at business banking platform Bluevine, explains, small business owners share two things in common: 1) an immense pride in starting and running their own enterprise and 2) a perpetual state of worry about their finances. Add to that a third commonality – most small businesses have been underserved by traditional financial institutions, which prefer to focus on the biggest enterprises.
- The problem: Because small businesses are often underbanked, entrepreneurs often have no other choice but to use their personal credit cards for business purchases or endure expensive overdraft fees to keep their doors open.
- #Powered by Fintech: Bluevine offers lending and banking tools purpose-built to serve the specific needs of small businesses. For example, proprietary cash flow underwriting means small businesses can get approved more quickly for a loan, enabling them to hire new staff, buy necessary equipment, or make a needed renovation.
- Key stat: A small business owner using Bluevine can get a line of credit in less than 10 minutes compared to one to two months at their legacy bank.
#3: Fintechs partner with trusted banks and credit unions to make your money work better for you.
How do fintechs work with banks? “Most fintechs are not banks themselves but partner with banks to provide financial services using technology to improve the customer experience,” says Josh Rubin, Vice President of Legal at Betterment, a digital investment advisor.
- Zoom in: Whether it’s payments, lending, or investing, banks must be integrated somehow because they are the conduit for money movement across the financial system.
- For example, consumers must link a third-party bank account to facilitate deposits into their Betterment account and access digital financial advisory services.
- #Powered by Fintech: A strong bank partnership helps fintechs like Betterment live out their mission that everyone deserves to be invested. Betterment helps consumers manage their “today,” “tomorrow,” and “someday” money so they can live their best financial lives.
#4 What is embedded finance? Dive into the financial technology making payments a seamless part of your everyday life.
Every company is becoming a payments company, according to Todd Pollak, Chief Revenue Officer at Marqeta. Todd unpacks a trending term and explains, “Embedded finance is nothing more than nonfinancial services companies actually doing financial services.” He adds, “If you’ve ever used Door Dash, Uber, or Instacart, you have experienced never having to take your wallet out of your pocket.”
- The status quo: Before fintech, financial services used to be walled off, making it hard for companies to offer payment options directly on their website or mobile app. That meant that a company delivering takeout, for example, had to navigate complex questions – does the driver pay with their own credit card and get reimbursed? Do they use a prepaid card with a large amount of money loaded on it, potentially allowing them to buy non-approved items?
- Today, fintech companies like Marqeta empower companies to innovate and offer unique payment options that meet consumer expectations for the digital age. As a result, you can pay your delivery driver with the touch of a button and vice versa for the delivery company.
- #Powered by Fintech: 86 percent of Americans who use a mobile wallet have made a purchase using a retailer’s embedded mobile app, demonstrating the ubiquity of embedded finance.
#5: Buy Now Pay Later helps merchants empower their customers with flexible payment options.
How does Buy Now Pay Later (BNPL) help small businesses? Kristina Elkhazin, Head of North America at Klarna, explains that fintechs like Klarna give merchants opportunities to grow their customer base, increase traffic to their stores, and gain valuable insights.
- The fintech effect: Kristina believes Klarna can be viewed as a “shopping ecosystem” that “empowers consumers through frictionless and transparent payment options.” She explains that merchants “can feel confident that their shoppers will have a simple but exciting purchasing experience, allowing them to build upon the trust and the loyalty they’ve already established with their customer base.”
- The BNPL difference: Buy Now Pay Later companies like Klarna also reduce risks for small businesses as they settle with the merchants upfront as soon as the transaction is complete, taking on the responsibility for repayment or potential fraud risk.
- #Powered by Fintech: Merchants using Buy Now Pay Later see lower cart abandonment and a 20 to 30 percent increase in sales, demonstrating the clear business impact for merchants.
#6: A founder’s story: How does earned wage access (EWA) help workers?
“Why are we all paid every two weeks?” asks Ram Palaniappan, Founder and CEO of EarnIn. He points out that it wasn’t always this way, and the twice-a-month payout model doesn’t work for everyone. Instead, Earned Wage Access empowers hard-working Americans with financial flexibility.
- An everyday issue: Ram shares the origin of EarnIn and his desire to fix a real problem his employees were facing on a regular basis. Whether it’s utility bills, car expenses, or unexpected costs, hard-working Americans can find themselves drowning in overdrafts and late fees or needing to turn to high-interest credit or predatory payday loans.
- #Powered by Fintech: Ram built a better option for not only his employees but the entire workforce. He founded EarnIn, which allows workers to make any day payday. With EarnIn, people are paid for the work they’ve already completed. EWA is not a loan, so there is no interest or hidden fees.
- Key takeaway: EarnIn makes life simpler because consumers can uniquely manage their money to best achieve their financial goals.
#7 Fintechs make it easy to send and receive money with confidence.
What should consumers know before sending money on a payment service? Millions of people use payment apps to send, receive and invest their money. These are powerful tools to help consumers take control of their finances and easily connect with family and friends. It’s important for consumers to ensure their financial information is secure, and the recipient’s information is trusted and accurate, says Amena Ross, Head of Global Policy at Cash App.
- Security at the forefront: Fintechs use security measures like two-factor authentication, encryption, fraud prevention, and security locks to safeguard a consumer’s account information and mobile device.
- Connection at your fingertips: Payment services like Cash App enable friends and family to send money securely, easily, and efficiently without using cash, checks or cards. Payment Apps also allow consumers to pay trusted merchants for goods and services.
- #Powered by Fintech: Today, more than three in four Americans use a payment app like PayPal, Venmo, or Cash App. Almost half (47%) say they use payment apps because it makes sending money to people safer.
#8 Helping small businesses scale on their own terms with fintech tools.
How do fintechs help small businesses access capital? One of the biggest pain points for small businesses is an inability to build a financial track record to allow them to borrow money from a large bank, explains Luke Voiles, the CEO at Pipe, the modern capital platform.
- The problem: Entrepreneurs, startups, and small businesses struggle to build good credit to get a loan for up-front growth capital from larger financial institutions.
- The fintech solution: To help small businesses scale up, Pipe offers an integrated financial service that allows small businesses to tap into the software they use to run their business to illuminate their financial track record. Pipe’s model allows companies to turn future revenue into upfront capital without having to dilute shares in their business.
- #Powered by Fintech: American small businesses employ more than 60 million people and generate more than 40 percent of the country’s economic activity. Enhancing access to capital allows entrepreneurs to spend less time on administrative tasks and focus on their goals, creating a better life for their family and their community.
#9 Keeping your money and financial information safe when using a fintech app.
The trust factor. “Today, millions of Americans use digital financial tools to spend, save, and manage their money with the touch of a button, says Elise Houlik, Chief Privacy Officer at Intuit. “People use these tools to manage their money quickly, but they also care about privacy and safety,” she goes on to say.
- Zoom in: Fintechs take consumer security, safety, and privacy seriously. Many have dedicated teams such as system architects, cybersecurity leaders, product developers, and privacy engineers at work with one mission in mind: how to keep consumer data safe.
- Privacy questions: Fintechs like Intuit ask themselves important questions like, “Do we understand what data we need from our customers and why? Have we taken every opportunity to reduce unnecessary data? Are we taking steps to ensure data is accurate and protected?”
- #Powered by Fintech: 83% of consumers prefer to control where their data goes rather than letting companies choose for them.