Summary: Financial technology (or fintech) innovations have fundamentally changed the financial sector. What is fintech, and how has it impacted everything from depositing a check to how small business owners can easily choose their insurance?
 

The financial services sector is a foundation of the world’s economy. Today’s financial technology sector is booming. Innovations in mobile banking, mobile payments and the growth of cryptocurrency are just a few of the transformations developed from financial technology innovations.

Fintech Definition

Fintech, or financial technology, is a technological innovation that seeks to improve and automate the delivery and use of financial services. Fintech services help companies and consumers better manage their financial processes utilizing their computers and smartphones. Fintech startups have disrupted the financial sector by expanding inclusion to all customers and institutions. The new technologies are data-focused, allowing financial institutions to predict customer behaviors and help the companies cut down on their operational costs.

When fintech first hit the market, the technology was focused on the behind-the-scenes systems at banking institutions. Since then, there has been a shift to consumer-oriented services and other industries such as education, retail, fundraising, nonprofit and insurance. Fintech also includes the development and use of blockchain, cryptocurrency and bitcoin. Blockchain compresses the asset (titles, vehicles, home sales and money) transfer into one step, taking seconds and not days.

Fintech Technology

Financial technology is changing the world of finance. Fintech innovations are being utilized in the following financial sectors:

• Cryptocurrency
• Blockchain technology
• Smart contracts
• Open third-party banking programs
• Insurtech or insurance technology
• Regtech or regulation technology
• Robo-advisors for investment advice
• Banking services for disadvantaged or low-income individuals

Popular Fintech Innovations

The financial technological innovations have led to activities that we now take for granted, such as:

• Money transfers
• Depositing a check via a smartphone
• Raising money for a startup
• Managing investments

In the past, these financial procedures could only be completed with the assistance of an actual person. Today, they can be done with a mouse click or a simple swipe on a smartphone.

Plaid and The Harris Poll looked at fintech’s impact on consumers. Survey respondents stated that using fintech saves them time (93%), money (78%) and reduces financial fear and stress (71%). Forty-eight percent of those surveyed said they use fintech every day. Overall, financial technological innovations make finance more inclusive and integrate it into everyday life.

Regulation and Fintech

The financial industry is one of the most heavily regulated sectors in the world. Fintech startup innovations have added to regulatory problems for financial institutions, especially as the technology is integrated into everyday systems. Blockchain and cryptocurrency are not currently regulated; however, that could change as more countries look into the innovations.

What is a Fintech Company?

As of 2021, the United States was the home of 10,755 fintech startups. Between 2010 and 2019, the investments in fintech companies reached $215.4 billion. Investments dropped in 2020, reaching a value of $121.5 billion, but global funding bounced back in 2021. The United States has the most fintech startups deals (38%), with Asia in second place with a 26% share.

Fintech is closely associated with the banking industry. Fintech startups have worked with banks in various ways, including helping consumers open new accounts, deposit checks, apply for mortgages and do other mobile banking procedures. Other fintech companies work within the cryptocurrency world, while others help develop more accessible ways for small businesses to purchase their insurance.

Fintech and the Insurance Industry

Fintech innovations have fundamentally changed the insurance industry for both consumers and carriers. Insurtech, or insurance technology, has enhanced customer experience, allowing consumers to shop for policies in one place and carriers to streamline underwriting, customer service and claims processing. For small business owners, financial technological advancements have provided individualized risk selection and allowed them to search a broader range of price points and available policies.

Prateek Sangal, head of digital strategy at AmTrust Financial, explains the impact on the insurance industry, “Brokers and agents who embrace digital functionalities will lead the pack in growing their business and be better positioned to address the evolving needs of their customers. Adopting these digital tools will help agents focus on what they do best — advising their clients.”

On the insurance carrier side, Sangal also sees fintech impacting how underwriters write policies, “We have seen that the carrier can have underwriting savings because they're going to write this business at a better loss ratio or a better loss performance. Automating some of the decisions allows consistency of underwriting.”

AmTrust Partners with Insurtech Companies

In the past few years, AmTrust has partnered with many fintech companies to enhance our processes, from policy writing and underwriting to claims management. We recently entered into a strategic alliance with Pinpoint Predictive, a leading data enrichment and explainable AI platform. Pinpoint allows for personalizing predictive analytics, creating efficiencies that benefit small business owners and their insurance partners.

In 2020, AmTrust partnered with Appulate, a digital technology platform for insurance companies, which allows retail insurance agents and brokers to rate, quote and bind workers’ compensation policies in real-time. AmTrust also allied with Tarmika, a single-entry efficiency solution for agents and brokers to quote multiple carriers in one application, allowing for a seamless workers’ compensation policy quoting process.

Also, in late 2018, AmTrust Warranty and Specialty Risk partnered with Servify. The alliance provides device protection programs that offer a range of subscription pricing and coverage options, a comprehensive device catalog, an advanced rules engine, and accurate device evaluation and calibration for retailers, carriers and original equipment manufacturers (OEMs).

Courtney Palladino, Vice President, Business Development, AmTrust Warranty and Specialty Risk explains further, “Consumers have a high level of expectation when it comes to their buying experience. They want options to meet their budget and products that provide tangible value. AmTrust has adapted to the evolving Insurtech space by supporting the needs of our Insurtech partners when it comes to developing flexible payment and product offerings which includes subscription and bundle programs.”

What is the Future of Fintech?

Fintech companies are designed to challenge traditional financial services by providing agile and faster service. In the few decades that financial technology has been on the market, it has left a lasting mark on the financial industry. Since its inception, fintech companies have attracted investment from private venture capital companies. However, today, more conventional banks and financial sector industries are investing in the fintech startups that originally challenged their traditional models.

Even though fintechs have brought fundamental disruption to the financial sector, they still need to evolve and work with institutions to meet ever-changing customer demands. In the future, fintechs could focus on more automation, hyper-focused customer experience and sustainable innovations.


 

Partner with AmTrust Warranty and Specialty Risk

AmTrust Warranty & Specialty Risk is a leading global provider of service contracts and insurance for third-party administrators, manufacturers, financial institutions, retailers and distributors. From consumer product warranties to protect customers’ investments on items like smartphones, appliances and autos to home warranty coverage that provide homeowners peace of mind, we rely on fintech technologies to find the best solutions for our customers. Contact us to learn more about our specialty warranty solutions.

This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.