With the Office of the Comptroller of the Currency’s (OCC) recent approval of a groundbreaking fintech charter, many people are talking about the emerging fintech industry. Loosely defined, fintech is a term used to describe newly created financial services that are technology driven.
In this article, we’ll take a look at some emerging fintech smartphone apps, as well as some the most popular ones used by consumers and businesses.
One of the premier fintech apps, Venmo allows users to send money instantly through PayPal to other Venmo users. This app is essentially a digital wallet that is linked directly to the user’s bank account or debit card and makes tasks like splitting the check at dinner or paying back a personal loan easier than ever. Venmo also adds a social aspect to financial transactions with its feed feature, which allows users to share their purchases with friends or see what their friends have bought. For the sake of privacy, this feature is totally optional, and Venmo asserts that it doesn’t ever share user information without permission.
The applications for Venmo are vast: you can use the app to purchase nearly anything that you can buy with a debit card or bank account. Venmo is available as a free download in the Google Play store for Android devices and in Apple’s App Store for iPhones. Users can also register for a Venmo account with their Facebook credentials or their email address.
Apps must authenticate financial data before they can use the information to make purchases or transfer money to another person. In the past, this was typically accomplished by sending one or more small deposits (micro deposits) to a user’s financial institution, and then waiting for the user to authenticate these transactions. This process took several days and prevented users from using services immediately, which was frustrating not only for consumers but also for developers. Plaid does not actually process any transactions. Instead, it authenticates bank information via the user’s online banking login information, often in seconds.
Plaid’s products, Auth and Connect, enable instant bank account authentication. Connect works by verifying transactions on bank accounts or credit card statements. Auth is an alternative way to verify bank account details from the top 13 financial institutions in America using login credentials. New customers can take advantage of the app’s free trial to initially accommodate up to 100 user accounts. Currently, Plaid’s products are only available in the US and serve only US banks, but the company is looking to expand internationally.
Fintech apps are not always just used for transferring money or quickly paying bills. Created in 2013, Robinhood is a sophisticated trading app that now has more than 1 million users. The company claims to have saved traders more than $200 million in commission fees. This is because Robinhood doesn’t charge commissions to trade stocks, which is perfect for more inexperienced traders or those with less access to capital. As such, Robinhood has a distinct advantage over the competition.
Instead of charging fees on each transaction, Robinhood looks to increase revenue by offering a Robinhood Gold option that will cost subscribers $10 a month. The Robinhood Gold option allows users to bypass the three-day waiting period for transfers to process, receive instant deposits, make trades before and after markets close, as well as borrow money to make trades if they maintain a minimum of $2,000 in their account. Robinhood is a free download for Android and Apple devices.
Fintech continues to gain more attention and is rapidly expanding, but there will be some hurdles to overcome in terms of changing the way we view financial transactions in the 21st century. With the recent approval of a federal fintech charter, fintech companies will be subject to some of the regulations that currently govern traditional banks. Because fintech companies are not deposit-based institutions or backed by government insurance, new regulations must be tailored specifically to fintech companies’ processes.
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