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Lately a lot of investors are asking, "What is fintech?"
It's a term that's popping up more and more in the financial media, and for good reason. Fintech, which is a compressed version of the term "financial technology," has become a shorthand for how digital technology has begun to disrupt the world of banking and finance.
Fintech is sending shock waves through sectors such as payments (think mobile payments), lending (think crowdsourcing), money transfers, and asset management in the form of "robo-advisors" – software algorithms that manage portfolios in place of humans.
As a result, fintech has become an area ripe for startups. Venture capital investment in fintech startups rocketed from $1 billion in 2010 to $12 billion in 2014. Nearly $50 billion has been invested in total since 2010.
The only surprise is that it took so long.
Banking and finance is one of few industries that had escaped disruption from the digital revolution.
Most of its infrastructure is decades out of date. People still use paper checks, debit cards require PINs, and money transfers take days to go through. Loan applications are filled out on paper and can take weeks to be approved.
Using digital technology and the Internet, all of these functions can be done faster, cheaper, and more conveniently.
Perhaps the most visible example of fintech is the digital currency Bitcoin.
With Bitcoin, it's possible to move money between two parties anywhere in the world in a matter of minutes at almost no cost. And the technology underpinning Bitcoin, the blockchain, has even greater fintech possibilities because it can embed data as part of a transaction.
To find out more about the state of fintech today, take a look at the infographic below:
Credits: Call Levels