If you've used Venmo to split a dinner check, bought cryptocurrency on your phone, or used an app to make a budget, you've put the power of fintech to work for you.
The percentage of US consumers using technology to manage their finances jumped from 58% in 2020 to 80% in 2022—meaning more people now use fintech products than social media. Despite a slight cooling off in usage from 2021 to 2022, fintech is now just behind the internet as one of the most widely adopted consumer technologies.
The increase in financial technology usage is reshaping our financial world. People’s money is easier to access, and there is more they can do with it. Fintech provides new ways to share, save, invest, and manage money—making life better for the people it touches while helping reach those underserved by legacy financial options.
Having reached mass adoption, it’s clear that fintech is here to stay. In this article, we’ll take a closer look at what it is, how it works, look at top fintech companies, and explore how these companies are changing the financial industry.
What is the definition of fintech?
Fintech is a portmanteau of the words “financial” and “technology”. It refers to any app, software, or technology that allows people or businesses to digitally access, manage, or gain insights into their finances or make financial transactions.
Over the last decade, as consumers increasingly adopted digital tools, fintech arose as a means to help consumers address financial challenges and make progress toward financial goals. In turn, consumers have come to rely on fintech for a range of uses—from banking and budgeting to investments and lending—as well as for its tangible everyday benefits.
According to Plaid’s Fintech Effect, consumers report numerous benefits of using fintech including economic relief, time savings, and reduced stress.
In addition to time and money savings, respondents also cited softer answers including easier financial tracking, greater control, more choice, and improved financial habits. This speaks to the many ways—both quantifiable and not—that fintech has become an integral part of people’s daily lives.
→ Want to know how SoFi helps members save, spend, and invest smarter? Watch the Powered by Plaid story to learn how SoFi helps customers reach their financial goals.
What is a fintech company?
A fintech company refers to any company that offers financial services or applications that rely heavily on technology. Fintech companies are often industry disruptors—they use technology to change how consumers interact with the financial industry. This often includes expanding access to financial products, lowering fees, and providing faster, more personalized service.
Fintech is often used as a self-identifier, rather than a specific label from an organization that oversees the industry. The best-known examples of fintech companies are fintech banks, however, there are several other fintech verticals that we'll explore in a later section.
Fintech industry overview
The industry has seen impressive growth over the past few years. In the Americas alone, the number of fintech startups increased from 5,868 in 2018 to 11,651 in 2023. However, the industry has cooled considerably. In 2021, global fintech funding reached a record $132 billion, accounting for 21% of all venture capital dollars. In 2022, global funding for fintech companies contracted to $75.2 billion, a 46% drop from 2021. Still, fintech funding is up 52% over 2020, indicating the decline from 2021 to 2022 is likely a market correction rather than an indication of the industry's decline.
It's also worth noting that overall adoption rates for fintech apps increased by 38% from 2020 to 2022, indicating that users are still committed to improving their financial lives and gaining more control over their finances.
Given these figures, much has been predicted about the industry’s next big trends, such as increased use of artificial intelligence to mitigate the risk of fraud, greater financial inclusivity, the expansion of embedded finance, and the rise of real-time payments.
Nonetheless, an investment downturn in 2022 tempered the industry’s long-rosy outlook, with many pointing to a necessary market correction following the pandemic-driven hyper boom of the past few years.
What does fintech do and how does it work?
There are several types of fintech apps, and they work in different ways. Some fintech apps safely unlock financial account data (e.g., transactions and account balances) with another app or they may allow users to track their investments across multiple platforms.
For example, wealth and financial management apps will aggregate financial account data from different accounts into one easy-to-read snapshot, showing users all of their financial information in one convenient place. Those same apps might also make suggestions to help users improve their financial position based on the available data.
Another fintech category is apps that allow users to do things like trade stocks or cryptocurrencies. Robinhood and Coinbase are classic fintech examples that allow users to quickly and easily make a wide variety of investments.
There are several types of ‘plumbing’ necessary to make fintech apps work:
APIs: Financial APIs (application program interfaces) safely and securely connect consumers’ bank accounts to fintech apps and services so they can share financial data, transfer funds, and verify their identities.
Mobile applications: Most fintech companies offer a mobile app so that users can access their funds and insights at any time. Whether it be a digital banking app, a financial management tool, or an investment platform, mobile apps are nearly synonymous with fintech.
Web-based solutions: On top of offering a mobile app, some (but not all) fintechs also offer a web-based solution where users can log in via a web browser and perform the same functionality they can perform on the mobile app.
With the power of APIs to safely unlock financial data and convenient mobile apps, fintech has changed daily life for most. For example, it’s increasingly likely that friends and family who want to send money to each other would use Cash App or PayPal, rather than exchange cash or checks in person or via the mail.
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Types of fintech and fintech products
Fintech covers a wide range of use cases across business-to-business (B2B), business-to-consumer (B2C), and peer-to-peer (P2P) markets. The following are just some examples of the types of fintech companies and products that are changing the financial services industry.
Fintech banks
One of the most central components of the financial system, banking services have been shaken up by the fintech industry. Things like account opening and funding as well as a reduction in fraudulent sign-ups are now quick and easy thanks to technology like Plaid’s own Auth and Identity Verification, respectively. In turn, neobanks like Varo offer flexible personal checking accounts, high-yield saving accounts, and even secured credit cards—all without the traditional fees that can hinder people from achieving their financial goals.
For more information on fintech banks (aka neobanks), check out our in-depth article on neobanks.
Digital payments
Cashless payments are on the rise. Since the onset of the pandemic, cashless payments have made huge jumps, with 41% of Americans saying all their payments in a week are digital, up from 29% in 2018. In tandem, payment apps and services have become more and more common. That’s because receiving payments via direct bank transfer is significantly less expensive than using credit cards, and getting users signed up and authenticated has become faster and easier.
In the United States, Plaid allows consumers to instantly connect their bank account to an app or service to carry out digital payments (Shift, for example, aims to take the hassle out of buying a used car) via the ACH network. On the B2B side, apps like Wave help businesses pay bills, do bookkeeping, and send payroll—also digitally and via ACH.
→ Looking to streamline payments for both ACH and real-time payment rails? Plaid Transfer authorizes customers, analyzes risk, and moves money with one single integration.
Personal financial management (PFM)
PFM apps help users consolidate financial information from various accounts into a single dashboard, making it easier to stay up-to-date with their finances. These services help people to manage, budget, and make sense of their money. Examples include Dave and Brigit.
Another leading PFM app, Copilot, helps its users build an accurate picture of their financial health and net worth. Watch the video below to see how Copilot uses Plaid to help its customers get a holistic view of their finances.
Wealth management
Fintech solutions help financial advisors and wealth management platforms aggregate held-away account information to better grow assets under management (AUM) while delivering more holistic financial advice. Atom Finance, for example, offers a suite of products and features to help users research and track all of their investments in one place. Stash is a subscription platform that gives customers easy and affordable access to investment, education, and financial advice products.
Fintech lenders
Lenders often struggle to gain a full and accurate picture of their applicants due to the amount of work and time it takes to collect income information, account balances, and asset history. In addition, it can be a cumbersome process to get borrowers to connect their bank accounts to receive and repay loans.
Top fintech lenders like SoFi, Prosper, and SoLo are using technology to overcome these pain points in the lending process while also providing more consumer-friendly loan choices. They are helping consumers avoid predatory loans and giving them access to new loan types such as peer-to-peer loans.
Plaid also helps by streamlining the loan process for borrowers while giving lenders access to the user-permissioned bank, payroll, and other data they need to make informed lending decisions. In this way, it becomes fast and easy to verify borrowers’ identity, assets, employment, and income, as well as authenticate their accounts, check balances in real time, and verify financial obligations.
Embedded finance
Embedded finance refers to financial services offered seamlessly in consumers’ everyday experiences through non-financial products and services. For example, Shopify Balance provides business checking accounts for Shopify users that help them get paid faster and manage their business. Shopify isn’t a financial institution, making Shopify Balance a financial product ‘embedded’ in a non-financial product. Companies like Unit and Checkout.com are helping make this ubiquitous, through API integrations that embed financial services directly into the product or user experience of non-financial companies.
Embedded finance use has picked up steam in recent years, and is expected to continue to grow. It’s estimated that these services will produce $230 billion in revenue in 2025—a 10-fold increase over 2020.
Fintech company examples
Looking at examples of fintech companies can help you understand how fintech is changing the financial industry.
Chime has shaken up the traditional banking model by offering no-fee banking services along with features that help customers avoid overdraft fees.
Likewise, Brigit is an app that helps build financial health by offering members budgeting tools, automated alerts, interest-free cash advances, and a centralized view of their money.
Qapital provides automated savings tools to help members spend confidently while achieving their financial goals.
Other companies offer targeted solutions to specific markets.
Placid Express enables customers to securely and affordably send money abroad while reducing the historically high risk of fraud associated with such transactions.
Prosper aims to advance financial well-being by giving borrowers access to affordable credit as the first peer-to-peer lending marketplace in the United States.
Another prominent peer-to-peer lending platform, SoLo Funds, is designed to help people solve short-term cash flow challenges without having to resort to predatory financing options like payday loans.
Companies like these and others are driving innovations and evolutions in the market, to the point that some innovations—no-fee banking services, for instance—are becoming table stakes across the sector.
As fintech companies create positive change, legacy financial institutions are becoming motivated to improve as well. For example, Wells Fargo provides its Extra Day Grace Period program that gives customers an extra day to make a deposit to avoid overdraft fees. Fintech banks create a standard where overdraft fees are more avoidable and financial institutions follow suit—helping create a financially healthier environment for all.
The impact of financial technology companies
By unlocking the full range of financial services that cut across use cases, fintech has carved out an important space for itself in the daily life of consumers. In fact, according to Plaid's study, consumers say they manage more than 60% of their finances digitally.
More than just providing convenience and lowering consumer fees, fintech is also helping foster financial freedom by offering millions of underbanked people around the world access to financial products—such as savings accounts and investment services—for the very first time. It has also impelled many financial institutions to begin using non-traditional data (such as income or rent payment history) to more accurately evaluate creditworthiness, which can help consumers without established credit qualify for loans.
Plaid’s same study shows that fintech is making finance more inclusive and social as well. For instance, fintech use has surpassed traditional banking among Hispanic people in the United States, while 46% of daily fintech users say they’ve progressed towards financial goals in 2022, and four in ten feel less financial stress.
Fintech is helping consumers change habits and obtain a fuller understanding of their financial circumstances and available options, giving them more confidence to take action and achieve better financial outcomes. It gives people the ability to take actions that were previously more difficult to take (such as investing on your phone). Because of that, it’s paving the way for a more financially free and equitable future.
Fintech products are democratizing financial services
Overall, fintech growth and innovation is bringing more and better financial services to consumers, including to those who have been historically forgotten.The Federal Reserve found that 5% of Americans are “unbanked” entirely—meaning neither they nor their spouse have a bank account—numbers which increase drastically in lower-income households.
Fintech democratizes financial services by making them more available to all consumers, especially those who are under and unbanked. With fintech, they can quickly open a bank account on their phones through a diverse range of fintech apps.
By democratizing access to financial services, fintech has created more options for consumers to improve their financial health and lives. It’s no wonder that all eyes are focused on where fintech is headed next.