Fintech Explained: How Technology Is Reshaping Money, Banking, and Payments

Fintech startups have grown from just 5,868 in 2018 to nearly 14,000 in 2024, transforming how people manage their money. In 2023, nearly half of American households used mobile banking, whilst 50% relied on payment apps like PayPal or Venmo. This revolution crosses all demographics, with over 90% of Hispanic consumers, 88% of African Americans, and 79% of Asian consumers now using fintech services.

What is fintech? The term refers to the innovative use of technology to deliver financial services more efficiently. Fintech companies range from payment processors to digital banks, all working to simplify financial transactions. The fintech meaning has evolved significantly, particularly as venture funding has poured billions into the sector. Although North America still produces the most fintech startups, Asia follows closely, with Europe in third place.

Australia stands out in the fintech landscape, ranking 6th globally with more than 800 fintech firms. Additionally, the Australian fintech industry has grown remarkably from A$250 million in 2015 to A$4 billion in 2021. Globally, the fintech sector is projected to reach $190 billion by 2026, achieving a compound annual growth rate of 13.7%. This article explores how technology is reshaping financial services, the different types of fintech services, and what this digital transformation means for consumers and businesses alike.

Understanding Fintech: Definition, Origin, and Scope

The term “fintech” may seem modern, but the connection between finance and technology has a rich history spanning over a century. Financial technology is the use of cutting-edge technologies to financial industry goods and services.

Fintech Meaning and Evolution

Fintech evolution is typically categorised into distinct eras:

• Fintech 1.0 (1866-1967): Building infrastructure for globalised financial services, including the first electronic fund transfer systems using telegraph technology.
• Fintech 2.0 (1967-2008): Marked by the installation of the first ATM by Barclays in 1967, characterised by the transition from analogue to digital finance. This era saw the establishment of NASDAQ and the rise of online banking.
• Fintech 3.0 (2008-present): Emerged post-financial crisis, driven by decreased trust in traditional banks and regulatory changes opening the market to new providers. The smartphone became the primary means for accessing financial services.
• Fintech 3.5: Acknowledges the distinct development trends in developing nations that have outpaced established banking infrastructure, such as China and India.

The 2008 financial crisis served as a crucial catalyst for modern fintech growth, whilst the COVID-19 pandemic further accelerated digital adoption. Consequently, venture capital funding grew from AUD 29.66 billion in 2015 to AUD 50.92 billion in 2020, then surged to AUD 141.13 billion in 2021—a 177% year-over-year increase.

What is a Fintech Company vs Traditional Financial Institutions?

A fintech company uses financial technology to augment, enhance and diversify financial services. Unlike traditional banks, fintech firms typically specialise in specific areas such as digital banking, financial management, or peer-to-peer transactions.

The key differences between fintechs and traditional banks include:

Traditional banks operate under strict regulatory frameworks that limit their ability to implement new technologies quickly. Conversely, fintech companies often face less stringent regulation, allowing them to adapt more rapidly to client needs and market changes. Furthermore, while legacy systems and regulatory inertia burden traditional banks, fintechs excel in innovation and customer-centric approaches.

This contrast has shifted the relationship between fintechs and traditional banks from competition to collaboration. Indeed, the convergence is steering the industry toward a hybrid ecosystem in which banks act as platforms, integrating fintech solutions to deliver comprehensive financial services.

Fintech in the Context of Digital Transformation

In the broader context of digital transformation, fintech is technology-driven financial systems that streamline complex financial processes, making them more accessible to users. Fintech includes everything from blockchain technology and artificial intelligence to digital banking and mobile payments.

Digital innovation in financial services has already delivered greater convenience and access for retail users. Artificial intelligence, cloud services, and distributed ledger technology are transforming wholesale markets across diverse areas, including financial market trading and regulatory technology.

The COVID-19 pandemic has undoubtedly accelerated this digital transformation, intensifying e-commerce and spurring the shift to digital payments. Countries with more stringent COVID-19 policies and lower community mobility experienced larger increases in financial app downloads following the outbreak.

Looking ahead, revenue in the fintech industry is expected to grow at about 15% annually over the next five years—almost three times faster than traditional banking’s 6% annual growth. This growth reflects fintech’s fundamental reshaping of the financial landscape through technology-based solutions that offer speed, accessibility, and customer-centricity unavailable in traditional systems.

Core Categories of Fintech Services

The fintech sector encompasses several distinct categories, each addressing specific financial needs through technology. From banking to investment management, these innovations are reshaping how financial services operate.

Digital Banking and Neobanks

Neobanks represent the digital-only evolution of banking, operating primarily through mobile apps and websites without physical branches. First and foremost, these institutions offer services similar to traditional banks—including savings accounts, current accounts, and payment services—but with enhanced digital features like real-time notifications and personalised financial insights. Neobanks usually provide greater interest rates on savings accounts and reduced fees because they do not have physical branch costs.In 2024, the neobanking market is expected to grow to AUD 9.74 trillion. Notable examples include Monzo, Revolut, Starling Bank, and Nubank, which has emerged as the world’s largest digital bank serving over 90 million customers across Latin America.

Payment Solutions: PayPal, Zelle, and Square

Payment apps have dramatically simplified money transfers between individuals and businesses. In fact, 84% of consumers have used peer-to-peer services, with 44% utilising them at least once a week. PayPal, operating for more than two decades, allows users to send and receive cash transfers internationally with moderate fees. Zelle differs by integrating directly with banks and credit unions, enabling fee-free transfers between bank accounts in minutes using only an email address or phone number. Meanwhile, Square (now Block) began as a mobile card reader but has evolved into a comprehensive business solution offering payment processing, inventory management, and point-of-sale systems.

Lending Platforms: SoFi, LendingClub, and Tala

Digital lending platforms have democratised access to loans by streamlining approval processes. LendingClub has helped more than 5 million members get over AUD 137.61 billion in personal loans. Similarly, SoFi offers personal loans with no origination or late fees, plus benefits like unemployment protection. For underserved populations, platforms like Tala provide microloans to consumers in developing countries by analysing smartphone data, including transaction history and mobile game usage. These platforms make borrowing more accessible and often more affordable than traditional options.

Wealthtech and Robo-Advisors

Artificial intelligence and algorithms are used by robo-advisors to handle financial portfolios with minimal assistance from humans. Specifically, these platforms ask questions about financial situations and goals, then automatically invest based on the data they collect. By 2030, the robo-advisory market is expected to have grown from its 2024 valuation of AUD 12.69 billion to AUD 51.37 billion. The majority of robo-advisors charge about 0.3% of the assets they manage each year, which is much less than the 1% that human advisors usually charge. This technology has made investment management accessible to ordinary investors regardless of account size.

Insurtech and Regtech Applications

Insurtech applies emerging technologies to the insurance sector, improving underwriting precision and claims processing through IoT devices and artificial intelligence. In contrast, regtech uses technology to enhance regulatory processes within finance. Regtech solutions help financial institutions monitor evolving regulations, automate compliance checks such as Know Your Customer (KYC) and Anti-Money Laundering (AML), and manage reporting requirements. These technologies significantly reduce compliance costs, with some platforms cutting expenses by up to 40%.

How Fintech Is Changing Consumer and Business Finance

Financial services have undergone a remarkable transformation, moving beyond traditional banking hours and physical locations to become accessible anytime, anywhere. The rise of fintech services has created new paradigms for how individuals and businesses manage their finances.

24/7 Access to Financial Services

Modern banking applications have revolutionised accessibility, enabling customers to manage accounts at any hour. The CommBank app, for instance, offers a virtual banking assistant named Ceba that answers day-to-day banking questions whenever needed. Likewise, the ANZ App provides instant control over accounts, cards, and profile settings from a single secure location. Moreover, many lending platforms now offer around-the-clock access to cash through dedicated applications, giving users complete control over their finances. This continuous availability represents a fundamental shift from the limited hours of traditional banking.

Personal Finance Management Tools

Budgeting applications have transformed how people track spending and achieve financial goals. Mint and YNAB (You Need A Budget) stand out as leading options with distinct approaches:

Mint primarily focuses on tracking past expenses and automatically categorising transactions from linked accounts to provide spending insights. Alternatively, YNAB employs a proactive methodology that encourages users to allocate every dollar before spending it, helping them plan rather than simply review past spending. According to YNAB, the average user saves AUD 917.39 in their first month and AUD 9,173.94 in their first year. Additionally, 92% of YNAB users report feeling less money stress since starting to use the application.

Business Automation through APIs and Cloud Platforms

Application Programming Interfaces (APIs) have become essential for business finance, enabling real-time data exchange between systems without file transfers. Unlike traditional file transfer protocols, APIs transmit data point-to-point between systems immediately, eliminating substantial risk. Accordingly, they facilitate open networks where technology providers can build applications on top of platforms, creating flexible, customised data warehouses. Essentially, APIs serve as the connective tissue that enables process automation across entire payment journeys.

Fintech Services for the Unbanked and Underbanked

Fintech has become a powerful tool for global financial inclusion. As of 2023, 4.2% of U.S. households (representing 5.6 million households) lacked a bank or credit union account. Furthermore, 14.2% of U.S. households (representing 19.0 million households) were underbanked, primarily using nonbank products to meet their financial needs. During this time, nearly half of banked households (48.3%) used mobile banking as their primary method to access their accounts. Financial technology solutions are now helping bridge the gap between unbanked populations and formal financial services, promoting economic empowerment.

Technologies Powering Fintech Innovation

Behind every fintech innovation lies a complex array of technologies working together to create seamless financial experiences. These technical foundations are constantly evolving, reshaping what financial services can achieve.

AI and Machine Learning for Credit Rating and Fraud Detection

Artificial intelligence systems excel at pattern recognition across massive datasets, identifying complex fraud signals that might escape human analysts. In banking, AI-powered fraud detection provides real-time analysis with faster response times than traditional methods. These systems employ supervised learning on specific fraud tactics whilst using unsupervised anomaly detection to identify previously unknown suspicious patterns.

At the same time, machine learning models evaluate borrower creditworthiness by analysing hundreds of data points beyond traditional metrics. For instance, AI can assess a customer’s annual income, bill payment consistency, employment stability, and transaction patterns to calculate loan repayment probability. Despite their power, these systems face challenges—as demonstrated in 2019, when Apple Card’s AI credit-scoring system offered men higher credit limits than women with similar financial profiles.

Blockchain and Smart Contracts in Payments and Compliance

Smart contracts are self-executing agreements with terms written directly into code that operate on blockchain technology. They are useful for improving security and transparency in financial transactions because of their immutability and cryptographic encryption. In particular, blockchain simplifies compliance processes by providing a unified, verified source of data accessible to authorised parties—especially beneficial for Know Your Customer procedures and anti-money laundering compliance. Given these points, each transaction on a blockchain is recorded transparently and is virtually impossible to alter, reducing fraud and error risks.

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Open Banking APIs and Data Aggregation Tools

Open banking APIs create standardised, secure channels for data exchange between banks and third-party providers. The value of global open banking transactions reached AUD 87.15 billion in 2023. These APIs facilitate detailed analysis of financial data, enabling targeted financial advice and product recommendations based on individual spending habits. Furthermore, financial data aggregation collects information from multiple sources—including bank accounts, credit cards, and investments—to create a unified view of finances. This process relies primarily on APIs that handle connections to thousands of data sources and normalise data into standardised formats.

Biometric Authentication and End-to-End Encryption

Biometric authentication analyses unique biological traits to ensure only rightful users can access accounts. Unlike traditional passwords, which phishing can compromise, biometrics provide a stronger defence against unauthorised access. Mobile biometrics—including fingerprint and facial recognition—have improved customer experiences in banking apps by simplifying login and transaction approvals. In fact, 40% of banks now use physical biometrics for fraud prevention, up from 26% five years ago. Despite these advantages, storing biometric data raises privacy concerns, as this information is unique and cannot be changed like passwords if compromised.

Risks, Regulations, and the Future of Fintech

As fintech adoption accelerates globally, so do the associated risks and regulatory challenges that shape the industry’s future.

Data Privacy and Cybersecurity Concerns

The fintech sector faces significant cybersecurity threats, with attacks increasing by 238% in 2022. Data privacy protection is essential for preserving consumer trust and operational integrity since financial institutions manage enormous volumes of sensitive data.  Banking institutions specifically struggle to integrate legacy systems, manage vendor risks, and address emerging threats whilst implementing new technologies. Robust security measures, including access controls, continuous threat monitoring, employee training, and data encryption, have become essential.

Regulatory Frameworks for Fintech Companies

Regulators such as ASIC, APRA, and AUSTRAC have become more proactive in licensing, conduct, and disclosure. ASIC has grown particularly active in enforcement, targeting disclosure issues, scams, and cryptocurrency assets. Both ASIC and AUSTRAC have established Innovation Hubs to help fintech startups navigate regulatory requirements. Yet regulators face ongoing challenges in balancing innovation with consumer protection.

Challenges in Cross-Border Compliance

Cross-border fintech operations require compliance with multiple regulatory bodies across different jurisdictions. Companies must navigate diverse licensing frameworks, varying AML requirements, and data localisation laws. For instance, the EU requires Electronic Money Institution licences, whereas the US imposes state-by-state Money Transmitter Licence regulations. Data protection rules create additional complexity, with GDPR in Europe and PIPL in China imposing strict limitations on cross-border data transfers.

Future Trends: Embedded Finance and Real-Time Payments

Embedded finance—integrating financial services into non-financial platforms—represents a significant growth area. Throughout 2025, widespread adoption of banking-as-a-service platforms will make it easier for companies to integrate financial functionality directly into their offerings. Real-time payment solutions are also gaining traction, with Brazil’s Pix system now the country’s most widely used payment method (76.4% adoption). These innovations will continue reshaping financial services whilst requiring careful attention to evolving regulatory frameworks.

Conclusion – Fintech

Fintech has fundamentally transformed the financial landscape, making services faster, more accessible, and increasingly customised. This evolution spans from early innovations like telegraphic transfers to today’s sophisticated AI-powered applications and blockchain solutions. Financial technology now touches nearly every aspect of modern monetary transactions, with digital banking, payment apps, and lending platforms becoming essential parts of daily life for millions globally.

The growth statistics indeed tell a compelling story. Venture capital funding skyrocketed from AUD 29.66 billion in 2015 to AUD 141.13 billion in 2021, reflecting strong market confidence. Additionally, user adoption continues to accelerate across demographics, with over 90% of Hispanic consumers and comparable percentages of other groups embracing fintech solutions.

Behind these user-facing applications stands an impressive technological infrastructure. AI systems now detect fraud patterns invisible to human analysts, while blockchain provides unprecedented transaction transparency. Open banking APIs enable seamless data exchange between financial institutions, thus creating opportunities for innovation previously unimaginable.

Fintech represents much more than technological innovation—it embodies a fundamental reimagining of how people relate to money. The democratisation of financial services through technology has allowed previously excluded populations to access banking services, created new pathways for wealth building, and empowered consumers through greater transparency. Though challenges undoubtedly exist, the trajectory points toward an increasingly accessible, efficient, and personalised financial ecosystem that serves both individuals and businesses better than traditional systems ever could.