What is a Fintech?

This module aims to discuss how a Fintech is developed and how this mindset differs from the traditional approach to business development, propositions, and improvements in a bank. It helps professionals explore alternative solutions and enhances the competitiveness of institutions. Once the bank realises that there are different ways to do what has been done traditionally, the how is a important factor to be taken in consideration, and it may affect the brand and culture, solutions must be thought if to be successful.

Fintech is the sum of two words, financial and technology: it is technology and innovation applied to financial services and applies to any financial service, and not just banks.

Fintechs generally offer their services through digital channels such as apps or websites. This enables customers to use the services and perform operations on their smartphones, feature phones, or computers without the need for a branch or physical store. Few fintechs have a physical presence, with all service and sales performed either through the internet or phone centres.

Fintechs are growing in importance and size around the world, and traditional banks, insurance companies and payment companies are reacting to this threat to their businesses. However, most traditional banks, insurance and payment companies are sticking to their heavy, bureaucratic and complex operational and commercial structures, providing an opportunity to fintechs, which are attracting more clients every day.

Fintechs and Digital Banks

Some fintechs have become digital banks. A Digital Bank is a financial institution that has a banking license, but unlike traditional banks they don’t have physical outlets and only provide services through digital channels or via phones (mobile phones or landlines thru call centres).

A fintech is a company that provides financial services through technology, but it is not necessarily a bank, as a fintech does not need the license of a bank to provide its various services. The fintech term applies to companies that provide services traditionally provided by banks, like current accounts, wallet accounts, savings and credit. A fintech also can be a payment gateway, provide insurance products, or it can exclusively provide credit solutions, and so on. It will often do that normally by partnering with institutions that do have a proper license. We will discuss it as we progress in the module.

In conclusion, for a fintech to be called a digital bank, it must have a bank license, and it will tend to obtain such license only after it reaches a certain size of deposits, and customers which is mandated by its local regulator.

How the Journey Starts

How is a fintech is created? Entrepreneurs see aspects of traditional financial services either being delivered inefficiently (with too many unnecessary steps and bureaucratic requirements) or leaving too many potential customers out of the market. Fintech entrepreneurs, by applying creativity, technology, partnerships and understanding of the regulations, started creating cheaper solutions (such as a free bank account or lower interest on loans), or with better service and less bureaucracy (hassle-free account opening, in-app real time customer interface) or delivering better value (active investment management). As with all innovations, some will grow, some will remain as niche solutions and others will disappear or be incorporated. Many new digital banks started as digital wallets with a physical card and cheap payment fees.

Fortunately, many of these ideas coincided with a time (roughly from 2012 to 2020) when capital markets had many investors willing to bet on new solutions and propositions, which has contributed to the rapid creation of many start-ups across the globe.

What are Start Ups?

Start Ups are new companies with a focus on innovation, trying to find new ways of delivering services, products and processes using technology and innovation. They are mostly in the initial stages of business, have not generated profits (or meaningful profits, at least), but do have short term growth potential (the “Up” part) with proper investment, and the proper leverage.

Fintech are a subset of start-ups, but a start-up can be any company from any industry or segment that is in the stage and condition defined above. It is not a segment of business but defines the stage a company is and is always linked to starting technology and innovation driven companies.

Fintechs are changing the Financial Service environment

One side-effect of the emergence of fintechs is that many incumbent banks are facing the heat of new competitors, but are also learning from them, creating a rich environment for innovation. As the number and quality of competing solutions grow, the new technologies are changing our relationship with financial institutions and money itself. Fintechs are also creating new processes and ways to deal with background issues in a faster, cheaper and more comprehensive way due to the advances of technology.

Building a Fintech

Whatever problem or opportunity you are trying to face, you must clearly define it before you start. It always starts with an opportunity to provide better, cheaper, or better and cheaper services to a group of customers. The opportunities may come from the current suppliers not properly delivering solutions, or not taking the opportunity to do it in a smart way, which would be a more efficient, easier or cheaper process from the consumer’s point of view. Opportunities may also come from changes in the external environment, requiring new ways for a certain service or product to be deployed.

Once you realise an opportunity, it is important to access the potential size of the market. You need to define potential customers and talk to them, understand their perspectives of the problem and the opportunity, and build solutions that answering problems for customer or help deliver their dreams. It’s also important to understand potential competitors and to see if similar solutions are in the market.

Many fintechs were created to provide alternatives to services that were poor or too expensive from the perspective of customers. Revolut, today a well-known fintech and Digital Bank in some countries, was created to address inefficiencies and high costs in the traditional banking and financial services industry, particularly in the areas of currency exchange, international payments, and banking accessibility. The company was founded in 2015 by Nikolay Storonsky and Vlad Yatsenko, with a clear focus on leveraging technology to provide better financial services for individuals and businesses. Like the founders of Transferwise, Storonsky had noticed that banks generally charged high fees to exchange currencies, often because there was little competition. Today Revolut operates in 37 countries, offers services including multi-currency accounts, cryptocurrency trading, and stock investments. It has more than 50 million customers in 2025.

Once you find the opportunity, the first step is the assessment of the solution to solving a problem and the respective size of the market. The result of this assessment will show if an idea or solution may have an opportunity to prosper.

Before you move on your journey on creating a Fintech, you need to understand a few points:

• Minimum technical requirements
• Minimum regulatory requirements
• Dynamics of the business
• Partnerships
• Clear budget up to pilot
• Sources of funding

Unfortunately, we see many great ideas and start-ups failing because of not understanding these points.

There are many creative ways to build a fintech. You may say that building a fintech is like a game of blocks.

As a game of blocks, the architecture of a fintech is designed by decoupling, and creating blocks that represent each step in the process of delivering the solutions. A founder must understand what is core to the business and what differentiates the solution from others in the market. The solution should be developed in-house; and will often use partnerships to accelerate “go to the market”. This reduces cost in parts of the process (blocks) that are seen as a “commodity”, and where there is no innovation, but where these blocks are a necessary part of delivering the service or product.

Each fintech will have different solutions and requirements, depending on the market it is in, the type of business, and the solution to be sold. There is no formula or blueprint to be followed – apart from understanding the need to build something fast, focused and at an affordable cost, using innovation, technology and partners.

One point here: fintechs will often have different teams working on delivering the block that build the whole structure. These teams will work separately and simultaneously, based on the requirements and briefing provided by a project coordinator, who understands the overall picture. This type of operational model enables the business to accelerate the time to market and keeps costs under control. Like in an orchestra, the project leader is the conductor and knows how all the parts should play together.

This is a key difference from the way traditional financial institutions build solutions: they tend to do almost everything in house. Due to security or control concerns, the design works in sequence which can limit innovation and creativity. Very few organisations will have the necessary experts or resources at every stage of the process to keep up with the speed of the market in innovation, causing them to miss opportunities to improve efficiency.