Advantages and disadvantages of Fintech companies (2024)

What are Fintech companies?

Financial technology companies or Fintech, for its acronym in English, are entities dedicated to providing the full range of financial services usually offered by traditional banking, only with the differentiator that technology is used to make these services more efficient and accessible products.

In the last decade, and particularly in the last 5 years, the development of technologies such as Blockchain, the Internet of Things (IoT), the 5G network, artificial intelligence, among others, have facilitated and changed the way to perform many processes that used to take a long time in traditional banking.

From opening a savings account, to receiving payments for a product or service or even investing in the world’s stock exchanges. These are some of the financial services that fintech have democratized to make them available at the click of a button for everyone with an internet connection.

Breaking paradigms

Although technological development in the financial field is not new and the term fintech has been used since at least 1980, it must be said, we could consider Bitcoin and the Blockchain technology behind it, as the most notorious disruptor of the last decade and precursor of the whole escalation of the creation of financial technology companies.

The specific objectives of blockchain technology are basically to improve cybersecurity in relation to user data, decrease transaction validation time and minimize transaction-related costs.

With an eye on all these areas of opportunity for conventional financial services, fintech have developed products, both for financial service providers and demanders, aimed at improving the experience of all participants in this financial system. They have also dedicated themselves to facilitating access to these services on a massive scale with the help of the internet and smartphones.

Advantages of Fintech

• Greater accessibility. This also translates into an increase in the banked population since anyone with internet access can open an account and apply for a loan without any problem.
• On average, fintech have response times for applicants that range from 10 minutes to 48 hours.
• Time optimization. Thanks to the fact that all processes are carried out through the Internet, it is not necessary, in most cases, to go to a physical branch.
• Variety of services. Fintech have managed to segment services, so that a whole range of services is offered, according to the needs of both financial services users and providers.
• On the users’ side, financial services range from opening a savings account, applying for a credit card, various types of insurance, to investing in a company requesting funds to expand, as well as in international financial markets.
• On the part of financial service providers, fintech offer solutions ranging from analyzing the profiles of credit applicants, storing data in the cloud, streamlining payment methods, among many others.
• Cost reduction. Another of the great differentiators of fintech, with which most of them intend to compete against traditional financial companies, is that the vast majority of fintech offer lower commissions than banks.

Disadvantages of Fintech

• Lack of physical branches. This can be a disadvantage when there is a problem in the provision of the service, since everything must be dealt with via email or social networks.
• Although in this aspect some fintech offer as a differentiator the use of blockchain technology to improve security, not all of them do so, a situation that puts the security of user data at risk.
• Although for many it is as easy as using their smartphones, the truth is that this condition immediately excludes a very large part of the population that does not have access to the Internet, and therefore, will have difficulties to become banked, even with the existence of Fintech.
• Lack of regulation. It is a reality that it is such a notorious phenomenon that authorities around the world continue, in many cases, to study and legislate this phenomenon. So, the regulations around fintech in the world are not perfect, and there is the possibility that some of these may be some potential fraud in the absence of regulation.

The fintech market is a market in constant growth in Latin America, in countries such as Mexico or Brazil there are more than 400 in each of them, and in others such as the United States, the United Kingdom or Israel a lot of money is invested in the creation of this type of companies that promise to change the face of the financial system.

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