Financial technology | What it is, how it works, companies and key risks & more related news here

Financial technology, or fintech, is a broad category of technology-driven financial services. Much of the modern financial system operates through apps, websites and other digital tools. If you used a bank account, made a digital payment, or managed money online, you’ve probably used fintech, whether you realized it or not. Fintech is not a single product or industrial segment. Many established financial institutions now use fintech tools, and financial products are often offered through partnerships between banks and fintech companies, a distinction that can affect how or whether your funds are protected.

What is financial technology?

Fintech uses software, data and digital infrastructure to perform financial functions. Fintechs often add convenience: faster transactions, easier account access and lower fees. Behind the scenes, fintech helps banks and other financial institutions hold and move funds, extend credit, and enable the buying and selling of investments.

Rather than replacing the financial system, fintech has helped reshape it. Traditional banks rely heavily on fintech tools to manage mobile deposits, provide 24/7 account access and management, detect fraud, and automate loan and mortgage underwriting.

You can use fintech every day without thinking about it, whether it’s depositing a check using your smartphone, sending money to family and friends, tracking expenses in a budgeting app, investing online, or getting an instant decision on a loan.

At the same time, many fintech companies offer products and services that operate similarly to a bank or credit union. For example, you can open an account with a fintech app like Chime or Current and earn interest (often shown as a percentage of annual return) on your savings or use a debit card to make purchases.

How consumers use fintech

Fintech covers a wide range of services, but most tools consumers use fall into four main categories.

Digital banking

Digital banking services allow you to open and manage checking and savings accounts, pay bills, and use debit or credit cards without visiting a branch. These services are typically provided by neobanks partnered with traditional banks, but many established banks now offer similar features in addition to in-person services.

Payments

This category focuses on how consumers make payments, including managing peer-to-peer (P2P) transfers, mobile wallets, online purchases, and subscriptions. Fintech is showing up in everyday transactions, like using tap-to-pay on your phone or smartwatch, instantly transferring money to friends using PayPal, Venmo, Cash App, or Zelle, and integrating buy now, pay later services into online shopping carts.

Invest

Advances in technology have reduced the cost of offering brokerage services, allowing companies to lower minimum account requirements and make online trading easier. These tools allow users with relatively small balances to buy and sell securities, monitor portfolios, and use educational resources. Some rely on automation and algorithms to help create and manage portfolios. Robo-advisors and apps like Robinhood that gamify investing are examples of fintech tools that have made investing more accessible.

Loan

Digital applications and automated underwriting have enabled loan providers to optimize lending. Some lenders, like Upstart, rely on alternative underwriting methods that incorporate artificial intelligence, allowing them to offer loans to borrowers who would otherwise be denied.

These systems can produce prequalification decisions within minutes and, in some cases, enable same-day financing. Short-term financing options (such as buy now, pay later) are not always regulated as loans, but they allow consumers to spread purchase amounts into installments, often with fewer upfront requirements than traditional credit.

How cryptocurrencies fit into fintech

Cryptocurrency overlaps with all major fintech categories. Cryptocurrency systems built with blockchain technology allow you to hold and transfer funds, invest, earn returns, and make payments that others can accept. Some services also offer cryptocurrency-based loans, creating systems that in some ways resemble traditional banking in their structure, although not in their regulation. Fintech tools have made it easier to buy, hold, sell, and manage cryptocurrencies along with other financial services. In some cases, you can access a crypto account through the same app you use for banking or payments, and convert digital assets into dollars using debit or credit cards.

How fintech is regulated and why it matters

Not all fintech companies are regulated the same, which can affect how your money is protected. Unlike traditional banks, many fintech companies operate through partnerships or specialized services that are governed by different rules depending on what they do and how they do it.

For example, a neobank is typically not regulated like a bank. Instead, it can partner with a traditional bank to hold customer funds, allowing it to advertise that their funds are guaranteed by the Federal Deposit Insurance Corporation and, in many cases, account records are managed by a third party. Neither the neobank nor the third-party service provider is FDIC insured.

If a fintech company or its service provider goes bankrupt, accessing your money can be difficult, even if the partner bank remains solvent. Since the bank did not fail, deposit insurance may not apply immediately and customers may have to wait while ownership of the funds is verified.

The regulation of cryptocurrencies and other blockchain-based services raises similar questions. The Internal Revenue Service treats cryptocurrencies like Bitcoin and Ethereum as property for tax purposes, while the Securities and Exchange Commission regulates them differently than stocks or bonds. Funds held on a cryptocurrency exchange are also typically not backed by the Securities Investor Protection Corporation, meaning different rules apply if an exchange fails.

Pros and cons of fintech

Fintech is deeply intertwined with modern money management, so it’s helpful to consider both its benefits and risks.

Financial technology professionals

• Accessibility. Fintech enables 24/7 account access and reduces minimum balance requirements, while expanding access to credit by using criteria beyond traditional credit scores.
• Convenience. It enables faster payments, stored payment information, and digital wallets that reduce reliance on cash or physical cards.
• Potential savings. Users can access higher interest rates on savings, lower fees, and competitive lending terms.

Cons of fintech

The final result

Financial technologies play an increasingly important role in the way consumers bank, pay, invest and borrow, often making financial services faster and easier to access. But fintech doesn’t eliminate financial risk, and the protections available to you may vary depending on the type of business involved. Knowing whether a financial product is offered by a bank, a non-bank fintech company, or a partnership between the two helps clarify what safeguards apply to your money.

Specific companies and services are mentioned in this article for educational purposes only and their inclusion is not intended as an endorsement.