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What’s Fintech?

Financial technology, or fintech, is changing the way people deal with their finances, leading to more efficient transactions and more informed consumers.

Financial technology, or fintech, is most often associated with robo-advisors, digital payments and other tangible tools that make life simpler for consumers. But there’s a lot more to this technology than convenience, and it’s a sector that experts believe will continue to change the way people interact with an industry they say is ripe for disruption.

“Traditionally financial services have been very non-technological – going into a bank, applying for a loan, using cash to purchase something, going to see a financial advisor, buying an insurance policy – all of these things are becoming digitized in a very, very fast manner,” said Adam Nanjee, head of the financial technology group at MaRS Discovery District, a Toronto-based innovation hub.

“With the proliferation of smartphones, how can our financial services not be at our fingertips on a mobile phone? I think we’re seeing that trend as financial institutions are recognizing that they have to offer all their services in a digital way, or I think people are going to start looking at alternative services that are available with that technology.”

Financial technology is a broad term used to describe companies that are using technology to digitize financial services more efficiently.

It covers everything from retail banking to analytics and investing, and brings together technology start-ups, banks, wealth managers and financiers.

In recent years, more and more big banks like CIBC and RBC have embraced this technology as they moved more of their services online, created apps to help customers keep track of their spending and developed technology that allows clients to deposit a cheque by simply taking a photo of it on a smartphone.

In fact, hubs like MaRS have worked to bring start-ups, venture capitalists and big players in the financial industry like Manulife, CIBC and credit and debit card payment processing giant Moneris together.

For consumers, fintech means more options. Moneris, for instance, has worked with start-ups that develop technology to put a restaurant’s menu online, allowing patrons to order and pay on their phones.

This makes their experience more pleasant, but it also helps businesses – a restaurant can turn tables quicker, which means time saved, increased revenue and happier customers.

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Fintech can also help make the financial industry more efficient by creating products that allow money managers to focus on their main job: making people money.

Companies like Toogood Financial Systems offer software that can handle an investment fund’s administration needs, like accounting and reporting. Overbond Ltd., a Toronto start-up, is even digitizing the bond market.

To Nanjee, financial literacy and education is a big component of fintech, and one where he believes there’s a lot of room to grow.

“If you want to know what your money is invested in or what your rates of return are, instead of reading through a 100-page mutual fund document, you could just have a chart on your phone,” he said.

Financial literacy platforms and simple investing platforms that are completely digital and can help people understand how to manage their own money are one of the areas many fintech companies are focusing on.

“Some of them are attracting millennials, who (don’t) have much financial literacy and (have) small amounts of money, but want to get access to markets they traditionally couldn’t have done,” Nanjee added.

“Technology has actually accelerated and advanced that.”

But like any relatively new sector, fintech also faces some challenges.

Regulation and compliance is a big one in Canada, because the country’s financial ecosystem has high standards for security, authentication and fraud prevention.

This makes fintech a safe sector to operate in, given that all the start-ups know that in order to be successful, they need to adhere to these rules.

The difficulty, Nanjee says, is keeping the right balance between having enough regulations to protect consumers but not so many compliance requirements that they stifle innovation.

“There are (also) a few elements like bitcoin and blockchain and a few other newer technologies within fintech that have not necessarily been proven yet,” he added.

“There are some concerns around their authentication and their security, but they still have a runway to prove themselves.”

As to what’s next for fintech, experts agree the possibilities will only be limited by the imagination of those developing them.

“We all have many, many facets of our lives that touch our financial services, and I think there’s much more to come,” Nanjee said.