Fintech

Fintech is a shortened form of the English words for finance and technology. It refers to offerings around money that are conceived first and foremost as software. An account can be opened via phone in a few minutes, a transfer triggered with two taps, a loan checked by a program. The term also refers to the companies that build such offerings. Many of these are young firms without branches, without counters, and often without their own banking license. Traditional banks, however, now offer similar services, which is why the line has become blurred.

Why the banking business is under pressure as a result

For decades, a bank was a place. Anyone who wanted money went there, waited, and signed forms. Fintech providers have replaced that place with an app. This drastically lowers costs, because software can serve a million customers almost as cheaply as a thousand. Branches, staff, and paperwork, on the other hand, recur every year anew.

For customers, this means above all speed and lower fees. An international transfer that used to take days and cost double-digit amounts now takes minutes and often costs less than a euro. People without a steady income or without a nearby bank branch also find it easier to get accounts. In countries like Kenya or India, payment apps have connected entire population groups to the financial system for the first time.

For investors and business journalists, fintech is therefore a perennial topic. Companies like Klarna, Revolut, or N26 became worth billions within a few years. At the same time, many of them have long been unprofitable, because they aim to win customers first and make money later. When interest rates rise and capital becomes more expensive, it is precisely these business models that come under pressure.

What lies technically behind the app

The core is almost always an interface, referred to in technical jargon as an API. This is a defined connection point through which two programs automatically exchange data. A payment app thus queries a bank for the account balance without a human typing anything in. The European rule for this is called Open Banking: banks must, at the customer’s request, release their data to other providers.

Many fintechs do not themselves hold a license to conduct banking business. They lease it from a partner bank in the background. You can picture this like an airline that sells tickets but uses other companies' aircraft. From the outside, the customer only sees the app’s brand.

Artificial intelligence plays a role above all in decisions and controls. Programs estimate, based on many data points, how likely someone is to repay a loan. Other systems detect unusual patterns in payments and stop suspected fraud within fractions of a second. A common misconception is to equate fintech with cryptocurrencies. Crypto is only a small subsector; most of the industry works with ordinary euros and dollars.

Fintech in everyday life and in the headlines

Most people use fintech every day without using the term. Paying with a phone at the supermarket checkout is part of it. So is PayPal, splitting a restaurant bill via an app, or buying stocks through a broker without an advisory conversation. Installment payment in online shopping is also a fintech product.

In the news, the term appears in two contexts. First, in funding rounds and IPOs, when a provider raises a lot of money from investors. Second, in scandals and regulation. The collapse of the payment service provider Wirecard in 2020 showed how much trust and how little oversight can coexist in this industry. Regulators have since been looking much more closely.