Fintech trends | TeamMate | Wolters Kluwer

What is fintech? A brief history

Fintech refers to the use of innovative technology to deliver financial services, such as payments, lending, investing, or insurance, more efficiently, affordably, or inclusively. Fintech’s origins can be traced back to the late 19^th century with the development of the telegraph and transatlantic cable system. Placing the cables deep within the ocean enabled the transmission of financial information across borders, facilitating faster and more efficient communication between financial institutions.

The 1950s marked another key technological milestone with the introduction of the Diners Club card – one of the first universal credit cards. This innovation helped reshape how consumers spent money and utilized credit. In 1967, Barclays in London introduced the very first ATM, combining vending machine technology with banking.

Other early innovations focused on automating traditional banking processes, such as electronic payments and online banking, laying the groundwork for more sophisticated developments, including the establishment of the first state-chartered, FDIC-insured online banking institution. The 2008 financial crisis created distrust in traditional financial institutions, which spurred the expansion and advancement of fintech. This, combined with the rise of smartphones and mobile applications, led to the emergence of new digital financial products and services. The COVID-19 pandemic further accelerated the fintech boom. As people sheltered in place and minimized contact with others, the demand for digital payments and services continued to grow.

Key definitions of fintech

When auditing a business area, it’s important to understand the control environment. Here are the key terms and definitions you need to know:

Embedded finance

Embedded finance is the integration of financial services into non-financial platforms, such as offering loans through e-commerce sites or payments in ride-share apps, allowing users to access financing without leaving the platform. Embedded finance enables customers to store, receive, or send funds. Buy-now, pay-later lending apps, such as Klarna, or digital wallets, like Apple Pay, are examples of embedded finance.

Banking-as-a-Service (BaaS)

Banking-as-a-Service is a model in which regulated banks provide financial infrastructure (via an application programming interface) to fintechs or platforms, enabling them to offer services such as accounts, payments, or lending without requiring a banking license. An application programming interface (API) is a set of protocols and tools that allow software applications to communicate with each other, which is critical for connecting fintechs to banks and other infrastructure providers.

This model benefits fintechs by allowing them to avoid the time-intensive and costly process of obtaining a banking license, while the bank benefits from this relationship by earning revenue on the deposits or loans it houses.

Neobank

Neobank is a fully digital “bank” with no physical branches, offering services such as checking accounts, credit cards, and loans through a mobile app and in partnership with a licensed bank. Some examples of neobanks are Varo, GreenFi, Simple, Chime, and Greenwood.

What does the fintech industry landscape look like?

There is currently a more welcoming environment for fintech companies interested in seeking bank charters, with regulators reducing barriers to entry and lowering compliance costs. Against this backdrop, fintech innovations are transforming nearly every corner of financial services:

• Banking and personal finance – Fintech has enabled mobile-first banking, real-time budgeting tools, and personalized financial insights for consumers.
• Payments, remittances, and transactions – Digital wallets, instant cross-border transfers, and low-fee payment platforms have transformed how money moves globally.
• Lending and credit – Fintech lenders use alternative data and AI to deliver faster, more inclusive, and personalized credit decisions.
• Investment and wealth management – Robo-advisors, micro-investing apps, and AI-powered analytics have democratized access to investment strategies once reserved for the wealthy.
• Capital markets and asset management – Algorithmic trading, tokenization of assets, and digital platforms have streamlined market access and investment operations.
• Insurtech and Proptech – AI-driven underwriting, digital claims processing, and property valuation tools have simplified insurance and real estate transactions.
• Blockchain, cryptocurrencies, and DeFi – Decentralized finance protocols, crypto assets, and blockchain infrastructure enable transparent, programmable, and borderless financial services.
• Regtech, compliance, and security – Automated compliance workflows, real-time risk monitoring, and AI-driven fraud detection have improved regulatory efficiency and security.
• Infrastructure – Cloud-native cores, open banking APIs, and embedded finance platforms have modernized the financial ecosystem’s underlying technology.

What are the key risks of fintech?

Fintech companies face several key risks that must be carefully managed to ensure their success and long-term sustainability. Cybersecurity has emerged as one of the most significant risks, making it critical to understand where your data is stored, shared, and protected. While many fintechs employ sophisticated engineers and robust information security programs, this is not universally true. Therefore, assessing the cybersecurity measures of your fintech partners is essential to safeguard sensitive information.

Regulatory and compliance risks, as well as fraud, are other areas of significant concern. Fintechs that provide banking services or products are not exempt from regulatory risk and must ensure compliance with all applicable requirements. Operating your business entirely online introduces a significant risk of fraud, making your organization vulnerable to various types of scams.

Other risks include:

• Technology risk involves evaluating the reliability and security of the tech solutions used, while third-party risk requires scrutiny of the fintech’s partners and their affiliations.
• Model risk, particularly with the increased use of AI, requires assessing the models employed.
• Financial risk is pertinent to understanding the financial strength of your partnerships.
• Reputation and conduct risk, along with contagion risk, highlight the importance of reputation and trust in the fintech industry.
• Jurisdictional risk highlights the importance of understanding and complying with local regulations and requirements.