FinTech 101
When was the last time you visited a bank in person? Now, take a look at your smartphone. Chances are, there are at least two money-related apps on your home screen—if not more. This shift reflects a profound transformation in how we manage money, driven by a short word with a big impact: FinTech.
But what exactly is FinTech, and why does it matter?
What is FinTech ?
FinTech, short for financial technology, refers to software, algorithms, and digital tools that deliver financial services through technology. The financial services industry runs on information, which makes it perfectly suited to benefit from new technologies that improve how we process and use data. It’s the driving force behind mobile banking, digital payments, and online investing platforms that have become part of daily life.
It’s the difference between standing in a bank queue and transferring money to a friend with just a few taps on your phone. By solving everyday problems, FinTech creates financial experiences that align seamlessly with how people live and work today.
How it developed: From paper to digital
The journey of financial technology begins in the 1950s, when the first credit cards emerged to free people from carrying cash everywhere. This simple plastic card marked the first step toward digital money. But the real transformation started in the late 1960s, when banks introduced the first ATMs, giving people round-the-clock access to their money for the first time.
The 1990s ushered in the internet age and with it, online banking and stock trading. PayPal’s 1998 launch is highlighted as a pivotal moment for customer-centric innovation.
The smartphone revolution marked the next great leap. Suddenly, everyone carried a potential bank branch in their pocket. Mobile payment systems and banking apps transformed phones into digital wallets. By 2015, these services had gone mainstream, with millions of people worldwide managing their money entirely through their phones. What started with a simple plastic card had evolved into an entirely new financial ecosystem.
How does FinTech Work?
FinTech relies on advanced technologies to create secure, efficient, and user-friendly financial systems. Each plays a vital role in delivering seamless services.
provides the foundation, enabling secure storage and processing of financial data.
powers fraud detection systems and automated investment advice.
creates tamper-proof records, ensuring transparency and trust. Blockchain reduces the need for intermediaries, boosting efficiency and lowering costs in financial transactions.
are advanced privacy that verify identities or access services without exposing sensitive data.
enable financial platforms to communicate and integrate seamlessly supporting innovations like open banking.
These technologies combine to deliver seamless experiences. For instance, when you make a mobile payment, multiple layers of security verify your identity, AI checks for unusual activity, cloud systems process the transaction, and blockchain ensures the record’s integrity—all within seconds.
FinTech in Action: Real-World Applications
FinTech isn’t just about apps on your phone. It’s reshaping entire industries and how we interact with money:
Services like mobile wallets and peer-to-peer platforms make transferring money instant and easy.
Online-only banks that offer traditional services without physical branches
Blockchain-based digital currencies redefine the concept of money.
Speeds up claims processing and enhances customer service.
Chatbots and robo-advisors simplify financial decision-making.
Financial services integrated into non-financial platforms, like ride-hailing apps offering payment options or e-commerce sites providing instant credit.
Removes traditional intermediaries, allowing direct access to services like lending, borrowing, and investing.
5 ways FinTech is reshaping finance
- Speed: Transactions that once took days now happen in seconds. Cross-border payments, investment trades, and bank transfers occur almost instantly.
- Access: With just an internet connection, you can manage your money anytime, anywhere. This is especially game-changing for people in remote areas, giving them access to tools traditional banks often overlook.
- Affordability of Banking Services: Lower fees and reduced overhead make financial services more cost-effective.
- Empowerment: FinTech promotes financial literacy through tools that help with budgeting, saving, and investing.
- Innovation: Constant technological advancements drive new business models and opportunities in finance.
Where it stands: Challenges and opportunities
Despite its rapid growth and transformative potential, FinTech faces significant challenges.
Challenges
- Cybersecurity: As financial services move online, safeguarding data against breaches and fraud becomes critical. The increasing complexity of systems heightens the need for robust security measures.
- Regulatory Compliance: Evolving regulations, such as the European Union’s General Data Protection Regulation (GDPR), aim to protect users but often increase complexity. For instance, while GDPR enhances privacy, it has also made financial disclosures harder to understand, raising concerns about transparency.
- Integration of Centralised and Decentralised Systems: The emergence of Decentralised Finance (DeFi) creates friction with traditional finance models. Achieving a balance between the flexibility of DeFi and the governance of centralised systems (CeDeFi) is an ongoing challenge.
- Sustainability of Business Models: High competition has led to a failure rate of up to 75% for FinTech startups. Developing scalable, profitable models remains critical for long-term success.
Opportunities
- Enhanced Security Measures: Technologies like zero-knowledge proofs (ZKPs) and decentralised identifiers (DIDs) offer new ways to protect user data and combat fraud.
- Financial Inclusion: DeFi and embedded finance open access to underserved populations by removing barriers such as physical banking infrastructure.
- Streamlined Regulation: Advanced AI systems can simplify compliance by automating regulatory processes, reducing costs, and increasing accuracy.
- Resilient and Adaptive Systems: With increasing use of blockchain and AI, FinTech systems are becoming more adaptive and robust, enabling quicker responses to market changes and threats.
SnT’s Contribution
At SnT, researchers are addressing these challenges through innovative projects:
- CryptoReg: Conducts cross-disciplinary analysis of EU cryptoasset legislation, offering recommendations to align regulations with technological advancements in the crypto space.
- AI-LegalLake: Focuses on the intersection of artificial intelligence and financial forensics, developing AI-driven tools to detect and prevent financial crimes while addressing the ethical and legal challenges of using AI in finance.
- FINER: Explores how FinTech can support sustainable investments, particularly in renewable energy markets, through innovative financial instruments and platforms.
- FinSAT: Investigates AI-driven investment solutions that leverage satellite data to generate real-time, automated financial insights for smarter decision-making.
Through such initiatives, SnT contributes to building a resilient and innovative financial ecosystem that meets the challenges of today while preparing for the opportunities of tomorrow.
What’s next: SnT at the Forefront of FinTech Research
As a global financial hub, Luxembourg benefits significantly from SnT’s contributions. Through FutureFinTech, the National Centre of Excellence in Research and Innovation, SnT bridges research and industry collaboration. This initiative, established in partnership with the Faculty of Law, Economics, and Finance (FDEF) at the University of Luxembourg, is supported by the Luxembourg National Research Fund (FNR) and the Ministry of Finance.
FutureFinTech addresses key challenges in digital finance by integrating expertise from technology, law, and finance.
• Automation of Financial Services
• RegTech and Compliance by Design
• Security, Privacy, and Usability.
The impact extends beyond Luxembourg. As financial services become increasingly digital, SnT’s work ensures the sector remains resilient, secure, and forward-looking.