What is fintech? 6 main types of fintech and how they work

If you've used Venmo to split a dinner check, bought cryptocurrency on your phone, or used an app to make a budget, you've put the power of fintech to work for you.  

Consumers are becoming increasingly comfortable using technology to manage their finances. While 87% of consumers are comfortable using national banks, 79% say they are comfortable using fintech companies, indicating a narrowing trust gap. 

The increase in trust in financial technology is reshaping our economic world. People’s money is easier to access, and they can do more with it. Fintech provides new ways to send, save, invest, and manage money, making life better for people and helping reach those underserved by legacy financial options. 

In this article, we’ll take a closer look at what fintech is, how it works, and some of the top fintech companies changing the financial industry.

What is the definition of fintech?

Fintech is a portmanteau of the words “financial” and “technology”. It refers to any app, software, or technology that allows people or businesses to digitally access, manage, or gain insights into their finances or make financial transactions.

As consumers increasingly adopted digital tools, fintech arose as a means to help consumers address financial challenges and make progress toward financial goals. In turn, consumers have come to rely on fintech for a range of uses—from banking and budgeting to investments and lending—as well as for its tangible everyday benefits.

According to Plaid’s Fintech Effect, consumers report numerous benefits of using fintech, including saving time, feeling in control of their money, and saving money—and 90% report fintech has helped them in some way.

What is a fintech company?

A fintech company is any company that offers financial services or applications that rely heavily on technology, such as apps, websites, and APIs. Fintech companies are often industry disruptors, using technology to change how consumers interact with the financial industry. This frequently includes expanding access to financial products, lowering fees, and providing faster, more personalized service. 

Key differences between fintech and traditional banks:

Fintech is often used as a self-identifier rather than a specific label from an organization overseeing the industry. As the fintech industry has matured, some differences between traditional banks and fintechs have similarly shifted. Traditional banks, for example, often offer HYSA and chat support. Some fintech banks now provide more conventional services like mortgages and loans, indicating that the increased competition from fintech companies is driving industry change. 

The best-known examples of fintech companies are fintech banks; however, we'll explore several other fintech verticals in a later section.

Fintech industry overview

The industry has grown impressively over the past few years. In the Americas alone, the number of fintech startups increased from 5,868 in 2018 to nearly 14,000 in 2024. Despite the industry cooling in recent years, some numbers suggest an upswing. 

In 2021, global fintech funding reached a record $132 billion, accounting for 21% of all venture capital dollars. In 2022, global funding for fintech companies contracted to $75.2 billion, a 46% drop from 2021. However, in 2024, startup funding reached $314 billion, a 3% increase over the previous year. This indicates a possible stabilization in the industry. However, not all startup funding goes to fintech companies, so this is a soft indicator.  

It's also worth noting that consumers are increasingly using many fintech apps to manage their money, educate themselves, and improve their financial lives. The Plaid Fintech Effect survey found that the average consumer uses three to four different apps to make payments, file their taxes, and do online banking. 

Given these figures, much has been predicted about the industry’s next big trends, such as increased use of artificial intelligence to mitigate the risk of fraud, greater financial inclusivity, the expansion of embedded finance, and the rise of real-time payments. 

The investment downturn in 2022 tempered the industry’s rosy outlook, but there are signs of improvement. The high-profile acquisitions of Brigit, Bridge, MoneyLion, and TradePMR and confidential IPO filings of several fintechs, including Chime, indicate renewed investor interest in the industry. 

How does fintech work?   

There are several types of fintech apps, and they work in different ways. Some fintech apps safely unlock financial account data (e.g., transactions and account balances) with another app, or they may allow users to track their investments across multiple platforms. 

For example, wealth and financial management apps aggregate financial account data from different accounts into one easy-to-read snapshot, showing users all of their financial information in one convenient place. Based on the available data, those apps might also suggest ways for users to improve their financial position.

Another fintech category includes apps that allow users to trade stocks or cryptocurrencies. Robinhood and Coinbase are classic examples of fintech that enable users to make a wide variety of investments quickly and easily. 

There are several types of ‘plumbing’ necessary to make fintech apps work:

• APIs: Open banking APIs (application program interfaces) safely and securely connect consumers’ bank accounts to fintech apps and services so they can share financial data, transfer funds, and verify their identities. 

• Mobile applications: Most fintech companies offer mobile apps so that users can access their funds and insights at any time. Whether it's a digital banking app, a financial management tool, or an investment platform, mobile apps are nearly synonymous with fintech. 

• Web-based solutions: Some (but not all) fintech companies offer a mobile app and a web-based solution. In this solution, users log in via a web browser and perform the same functionality as on the mobile app. 

The power of APIs to safely unlock financial data has changed daily life for most. For example, it’s increasingly likely that friends and family who want to send money to each other will use Cash App or PayPal rather than exchange cash or checks in person or via the mail.

Types of fintech and fintech products

Fintech covers a wide range of use cases across business-to-business (B2B), business-to-consumer (B2C), and peer-to-peer (P2P) markets. The following are just some examples of the types of fintech companies and products that are changing the financial services industry.

1. Fintech banks (neobanks)

Banking services are one of the most central components of the financial system, and the fintech industry has shaken them up. Thanks to technology like Plaid’s own Auth and Identity Verification, account opening and funding and a reduction in fraudulent sign-ups are now quick and easy. In turn, digital-only neo-banks like Varo offer flexible personal checking accounts, high-yield savings accounts, and even secured credit cards—all without the traditional fees that can hinder people from achieving their financial goals.

For more information on fintech banks (aka neobanks), check out our in-depth article on neobanks.

2. Fintech payments

Cashless payments are on the rise. Since the onset of the pandemic, cashless payments have made huge jumps, with 41% of Americans saying all their payments in a week are digital. In North America, non-cash transaction volume increased from $1.4 billion in 2023 to $1.6 billion in 2024, a 14% increase. In tandem, payment apps and services have become more and more common. That’s because receiving payments via direct bank transfer is significantly less expensive than using credit cards, and getting users signed up and authenticated has become faster and easier.

In the United States, Plaid allows consumers to instantly connect their bank account to an app or service for digital payments. On the B2B side, apps like Wave help businesses pay bills, do bookkeeping and send payroll.

3. Personal financial management (PFM)

PFM apps help users consolidate financial information from various accounts into a single dashboard, making it easier to stay up-to-date with their finances. These services help people to manage, budget, and make sense of their money. Examples include Dave and Brigit.

Another leading PFM app, Copilot, helps its users build an accurate picture of their financial health and net worth. Watch the video below to see how Copilot uses Plaid to help its customers get a holistic view of their finances.

4. Wealth management fintech applications 

Fintech solutions help financial advisors and wealth management platforms aggregate held-away account information to grow assets under management better (AUM) while delivering more holistic financial advice. Stash, for example, is a subscription platform that gives customers easy and affordable access to investment, education, and financial advice products.

5. Fintech lenders 

Lenders often struggle to gain a complete and accurate picture of their applicants due to the work and time it takes to collect income information, account balances, and asset history. In addition, it can be a cumbersome process to get borrowers to connect their bank accounts to receive and repay loans. In addition to consumers, small businesses benefit from the increased access offered by fintech lenders. 

Top fintech lenders like SoFi, Prosper, and SoLo are using technology to overcome these pain points in the lending process while also providing more consumer-friendly loan choices. They are helping consumers avoid predatory loans by leveraging cash flow data to expand access to credit. Fintech also allows consumers access to new loan types, such as peer-to-peer loans.  

Plaid also helps by streamlining the loan process for borrowers while giving lenders access to the user-permissioned bank, payroll, and other data they need to make informed lending decisions. In this way, it becomes fast and easy to verify borrowers’ identity, assets, employment, and income, authenticate their accounts, check balances in real-time, and verify financial obligations.

6. Embedded finance

Embedded finance refers to financial services offered seamlessly in consumers’ everyday experiences through non-financial products and services. For example, Shopify Balance provides business checking accounts for Shopify users that help them get paid faster and manage their business. Shopify isn’t a financial institution, making Shopify Balance a financial product ‘embedded’ in a non-financial product. Companies like Unit and Checkout.com are helping make this ubiquitous through API integrations that embed financial services directly into the product or user experience of non-financial companies. 

Embedded finance has gained popularity in recent years and is expected to continue growing. It’s estimated that these services will generate $230 billion in revenue in 2025, a tenfold increase over 2020.

Fintech company examples 

Looking at examples of fintech companies can help you understand how fintech is changing the financial industry. 

• Chime has disrupted traditional banking by offering no-fee banking services and features that help customers avoid overdraft fees. 

• Likewise, Brigit is an app that helps build financial health by offering members budgeting tools, automated alerts, interest-free cash advances, and a centralized view of their money. 

• Qapital provides automated savings tools to help members spend confidently while achieving their financial goals.

Other fintech companies offer targeted solutions to specific markets.

• Placid Express enables customers to securely and affordably send money abroad while reducing the historically high risk of fraud associated with such transactions. 

• Prosper aims to advance financial well-being by giving borrowers access to affordable credit as the first peer-to-peer lending marketplace in the United States. 

• Another prominent peer-to-peer lending platform, SoLo Funds, is designed to help people solve short-term cash flow challenges without resorting to predatory financing options like payday loans.

• Adyen is working to make pay-by-bank more prevalent in North America, helping drive the adoption even further. 

Companies like these and others are driving innovations and evolutions in the market to the point that some innovations—no-fee banking services, for instance—are becoming table stakes across the sector. 

As fintech companies create positive change, legacy financial institutions are becoming motivated to improve as well. For example, Wells Fargo offers its Extra Day Grace Period program, which gives customers an extra day to make a deposit to avoid overdraft fees. Fintech banks create a standard where overdraft fees are more avoidable, and financial institutions follow suit, helping promote greater financial health.

Fintech FAQs

The fintech industry is rapidly growing and constantly changing. Our fintech FAQ will help keep you informed. 

What is fintech? 

Fintech, short for financial technology, refers to innovative digital solutions that offer financial services, including banking, lending, investments, and payments, primarily online. 

What are the benefits of fintech? 

Fintech makes financial services more accessible, faster, and often cheaper. Using technology, fintech apps can access more data, process payments faster, and improve security. The rise of AI and machine learning is likely to enhance the benefits of fintech even further. 

What are examples of fintech companies? 

Well-known examples of fintech companies include PayPal and Square for digital payments, Robinhood for investment and trading, Stripe for online payment processing, and Chime for digital banking. Other fintech firms specialize in areas like lending (SoFi, LendingClub) and cryptocurrency (Coinbase, Binance).

Is fintech similar to open banking? 

Fintech and open banking are similar but not the same. Open banking refers to banks securely sharing customer financial data with third-party providers via APIs, enabling services like budgeting apps, loan comparisons, and seamless payments. Fintech is a broader term used for technology-driven financial services, including those that use open banking principles.

Fintech innovation is driving change 

Overall, fintech growth and innovation are bringing more and better financial services to consumers, including those historically forgotten. The FDIC found that 4.2% of American households are “unbanked” entirely—meaning no one in the household has a bank account—numbers which increase drastically in lower-income families. 

Fintech democratizes financial services by making them more available to all consumers, especially those under- and unbanked. With fintech, they can quickly open a bank account on their phones through a diverse range of fintech apps. 

Fintech has created more options for consumers to improve their financial health and is driving national banks to make changes. It’s no wonder that all eyes are focused on where fintech is headed next.