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What is FinTech and how can it help investors?

Technology continues to transform a number of traditional industries worldwide, delivering faster, more accurate and increasingly cost-effective services to customers and other key stakeholders.

The finance industry is no exception; financial technology – or FinTech – has developed rapidly in recent years, as innovative firms look to exploit inefficiencies across the sector.

So what is FinTech? What impact has it had on traditional financial services (FS)? And why are investors turning to such solutions in growing numbers? Let's delve a little deeper to answer these questions.

Understanding FinTech

FinTech can refer to a number of things. The term is typically used to describe the industry that has arisen at the intersection of finance and technology. The word FinTech is also often applied to firms that operate within the sector, as well as the technology itself.

Figures from PwC show that investment in FinTech start-ups doubled between 2014 and 2015.

What is clear is that FinTech is having a profound effect on FS, creating significant disruption for traditional businesses and providing more choice for investors and other consumers.

Figures from PwC show that investment in FinTech start-ups doubled between 2014 and 2015, rising from $5.6 billion (£4.5 billion) to $12.2 billion.
The three areas of FS where disruption is expected to be highest are consumer banking, fund transfers and payments, and wealth management.

Robo-advisers are one example of how FinTech is already having a notable impact on investment behaviour. These automated online services provide a low-cost, convenient way for individuals to invest and trade, often without any human interaction.

Why is FinTech momentum growing?

A number of factors are propelling the success of FinTech. First, technology-centric companies such as Google, Apple, Amazon and Facebook have set a high benchmark for consumer expectations in relation to how products, goods and services are delivered.

Meanwhile, millennials have become the largest living demographic in both the UK and the US. These tech-savvy consumers expect any time, anywhere access to services, including FS.

Fintech and wealth management at Affinity Capital. Younger investors are willing to accept automated financial advice through robo-advisers.

Legg Mason Global Asset Management research recently revealed that UK millennials are keener than almost any other demographic worldwide regarding robo-advice. Eighty-five per cent of Generation Y in the country said they are comfortable with the concept of robo-advisers, and 80 per cent claimed they would trust automated investment recommendations.

"With such trust being placed in online advice by younger investors, many of whom will have grown up with the internet, it would appear the future looks bright for robo-advisers as they seek to establish footholds in the UK advice market," said Adam Gent, Head of UK Sales, Legg Mason Global Asset Management.

The benefits of FinTech

Many traditional FS and banking organisations consider FinTech to be a significant threat to their business. Innovation has often been slow in the FS industry because heavy regulation and the phenomenal size of many big players slow the pace of change.

FinTech is here to stay and organisations that are slow to adapt to this new reality could find themselves at a disadvantage.

Nevertheless, it's not just investors who benefit from the rise of FinTech. Yes, customers and clients can experience faster, more reliable and more affordable services, but organisations that deploy sophisticated technology can enjoy mutual advantages.

For example, advanced data analytics is helping many businesses optimise their offerings and better understand key customers. Platforms such as Affinity Capital's ACE solution continue to streamline administrative processes, making structured investments far more manageable and accessible to the various stakeholders. Not only does this FinTech platform optimise service levels but also allows for huge volumes of business and transactions to be done with very few human resources.

FinTech can deliver significant benefits for both businesses and their customers, and this is leading to fruitful partnerships between FinTech firms and traditional FS enterprises that want to evolve their services.

Ultimately, FinTech is here to stay and organisations that are slow to adapt to this new reality could find themselves at a disadvantage in today's fast-moving FS landscape.

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