What is Fintech? And How Will It Change Your Life?

How “Fintech” is Revolutionizing the Financial Industry “Fintech” may be a foreign term for many, but don’t be intimidated – it’s just short for ‘financial technology’. Many readers have likely never heard the term Fintech or have a firm grasp of how financial technology is revolutionizing the financial industry, but many of you have probably used – or are actively using – financial technology already in your everyday lives. If you’ve ever sent a payment over Paypal or Venmo, transferred money online between accounts or to a family member, applied for a mortgage online or through an app, or perhaps currently use a robo-advisor to invest money in ETFs, you’ve used fintech. You’re a part of the revolution. What is Fintech? In its simplest form, Fintech is using technology to create efficiencies in the financial markets, whether it be in banking, wealth management, payment systems, or even areas like bookkeeping. Take Venmo – which is owned by PayPal – for example. With the Venmo app on a smartphone, a user can link their bank account or debit card to their phone number, and within seconds can transfer money to friends or family members who also have the app. A Venmo user quite literally types-in the dollar amount to transfer, hits send, and voila! The payment is made. Another application of Fintech is in the advisory business, particularly with “robo-advisors”. Robo-advisors are often powered by algorithms or technology designed to automatically build, monitor, and rebalance a portfolio. Robo Advisors trade exclusively with exchange traded funds (ETFs) and leverage algorithm based financial technologies designed to create highly efficient management at a lower cost.1 Fintech is emerging in the form of start-ups, but a key tenet is also supplying existing financial firms (“incumbents”) with tech-driven solutions to better serve customers and to lower costs. In our view, at the end of the day, that’s something just about everyone can get behind. Who Benefits from Fintech, and How? We believe that the benefits of Fintech can be best thought of in three categories: - You, the Customer/Client – a reality of 2018 and beyond is that customers increasingly want financial services needs to be handled quickly and via mobile devices or a few clicks online. Customers want access, transparency, and convenience. Technology is the enabler. - Society-at-large – as it stands today, millions of people in Africa never had – and currently don’t have access to a bank account or a debit card. To solve this issue, many areas are going completely cashless, opting instead to handle all financial transactions via mobile payments. Some form of mobile money is now available across the globe, but it remains especially popular in Africa. This form of Fintech provides financial services for people living in remote areas, and is providing financial infrastructure in places where it never existed. From a macroeconomic standpoint, we believe that Fintech will almost surely play an outsized role in shaping the emerging middle class across the globe. - Businesses – with Fintech, businesses can now provide their clients access to technology to make banking more convenient than ever, which can ultimately build trust. Fintech also potentially applies to anti-fraud and added security for financial accounts, which would benefit both business and consumer. What’s more, the technology also leads to lower costs for the business and more efficient use of their labor force. Who are the Major Fintech Players? The Fintech playing field is growing by the day, and it’s a diverse group. First and foremost, you have the “incumbents,” which are the large, well-established financial institutions. Think Bank of America, Chase, Wells Fargo, and Charles Schwab. Then, of course, are the tech behemoths that are active in the financial services space but not exclusively so, like Apple, Google, Facebook, and Twitter. The subset of large companies providing technology and Fintech applications in banking are ones like MasterCard, Fiserv, First Data, and even exchanges like NASDAQ. Then there are the so-called startup “disruptors”. The fast-moving companies that are focused on upending a certain aspect of the financial services sector. Here you find mobile payment companies like Stripe, PayPal, and Venmo, loan and mortgage companies like SoFi, new insurance companies like Lemonade and previously mentioned robo advisor addition in investment management. You can think of Zacks Advantage as the “Fintech arm” or Zacks Investment Management.2 As the landscape grows and technology becomes more broadly adopted and accepted, what we expect to see is more good old-fashioned competition driving innovation. And that’s a good thing, in our view. What’s Ahead? We believe that investors and customers alike should go ahead and adopt the mindset that the Fintech “revolution” is almost certainly not temporary. On the contrary, it is seemingly becoming the “new normal” for how the financial services sector works. The notion of a cashless society where payments and transactions are handled by phone, and where a person can manage their entire lives through an app, is not as far-fetched – or as far off – as many people think. Security and fraud-prevention will remain a central issue to widespread adoption, but we expect that innovation in those areas will move in lockstep with innovations in personal finance. Over the long-term, financial institutions are likely to have to make some fundamental changes to business models and to how they deliver products and services to consumers. We foresee that the end result is the evolution of a competitive landscape designed to best serve the consumer in the most cost-effective way – a win for consumers. Please keep this in mind as you make your plans for 2018. Also keep your eyes open for any trends that could be beneficial to your portfolio. One such trend to consider is how technology has innovated the investment industry with the rise of robo advisors by: - Adopting the latest advances in fintech to create investing efficiencies. - Investing exclusively with ETFs - Simplifying the investing process - Lowering fees and expenses For further information, we recommend you read our report: The Robo Revolution [Get your copy of the Robo Revolution guide]( © Zacks Investment Management | [Unsubscribe]( DISCLOSURE 1Zacks Advantages accounts may be managed differently than other Zacks Investment Management strategies/accounts. Zacks Advantage strategies have a track record beginning July 2016. As a result, only limited comparisons can be made to Zacks’ other strategies. Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Robo investments are subject to some unique risks, including, the fact that investment decisions are made by algorithms based on investors’ answers to questions, the lack of human involvement and the possibility that the software may not always perform exactly as intended or disclosed. Such investment program is only suitable for investors who can bear the risk of a complete loss of their investments Zacks Investment Management 227 West Monroe St. Chicago, IL 60606