GoodCall  | BY Donna Fuscaldo  (thanks to Michelle Billick)

Technology has transformed the way we do pretty much everything from shopping to socializing and it’s also turning the financial services industry on its head. Over the last few years, a crop of fintech startups has emerged, using technology to make it easier for people to invest, make payments and even get a loan.

For millennials, it’s particularly appealing because they grew up with mobile devices and want to conduct financial transactions the same way they would share pictures or apply for a job. The technology companies recognize that and have capitalized on it. “[Millennials] see financial services as a consumer product which is a much different way of looking at it,” says James Wester, research director at IDC, the market research firm.

But it’s not only their fresh perspective on financial markets that is making this industry possible. It’s also a convergence of technology and big data, enabling all sorts of companies to harness and analyze information in new ways, whether it’s coming up with a personalized investment plan or approving a loan through a different underwriting process.

What Is Fintech?

Fintech, or financial technology, encompasses a wide of companies using software to provide financial services. Financial technology companies are generally characterized as being startups created to disrupt existing financial models and the larger financial corporations that are less integrated with technology. Though, larger corporations are increasingly recognizing the need for software solutions and are turning to fintech to increase and improve their financial service offerings.

Global investment in financial technology has exploded in recent years. Fintech now makes up a multi-billion dollar industry, still dominated by startups offering technological solutions to financial services and products.

What Are the Advantages of Fintech?

Fintech has also leveled the financial playing field for everyday people, giving them access to services previously reserved for the wealthy or individuals of a certain economic stature. Take investing for one example. Technology and data make it much easier and cheaper to bring investment advice to the masses, which means something that was geared toward a certain asset level is now open to everyone.

Or consider lending. In the past, underwriters only had a few data sets to rely on when assessing risk, which meant lots of people were turned down or charged a higher interest rate for a loan. Fintechs are relying on different information when underwriting consumers, looking at things traditional banks have never considered and providing more people with access to personal and business capital. All of that could never happen without powerful computer systems and software and data scientists who can make sense of it all.

See:  New fintech platform Overbond aims to disrupt ‘opaque’ bond market

When it comes to fintech, the number of players and services are plentiful, largely in the more basic aspects of financial services including banking, investing, borrowing and saving. It’s also finding its way into applying for mortgages and even purchasing insurance, thereby giving consumers a lot of new options.

With that in mind, here’s the lowdown on the good, the bad and the ugly when it comes to fintech:

Robo Advisors

Robo advisors are one of the largest areas of fintech. These online investment services put users through a series of questions and then rely on algorithms to come up with an investment plan for them. Many don’t have requirements in terms of investable assets or the amount you need to open an account. Often, they choose low-cost investments such as index funds or exchange traded funds to keep the fees investors pay at bay. They also handle rebalancing and asset allocation automatically, giving customers one less thing to worry about.

“Robo advising takes what historically required a meeting with a person in an office and moves it to an automated or crowd-enabled, mobile-enabled device, making the experience much more familiar and less intimidating,” says Joy Schoffler, Executive Board Member for the FinTech Professional Association and Principal of FinTech focused Leverage PR. “As millennials begin to plan for their retirement futures, it’s likely that a majority of investments will be made without ever talking to a person.”

Some of the big names in the robo advisor market include Wealthfront and Betterment, although there are a slew of others that require a low amount of money to open an account and keep it simple by doing everything for you. It’s a natural area for technology since it doesn’t require too much involvement to create a basic financial plan based on risk tolerance and time horizon.

“There are certain aspects of financial planning and management that can easily be put in an app and done via an algorithm,” says Lucila Williams, president and founder of LOTUS Financial Partners and registered representative of Lincoln Financial Securities. “These apps and websites are reaching a generation of people at an asset level that the average financial advisor can’t.”

These apps and websites are reaching a generation of people at an asset level that the average financial advisor can’t, says Williams.

Continue to the full article --> here