Note (September 2026): This article has been corrected. LendingClub stopped peer-to-peer lending in December 2020 and is now Happen Bank, and many app-based “fintech banks” are not banks themselves but rely on licensed partner banks.
Fintech companies are disrupting banking by moving core services into apps: instant payments such as India’s UPI, digital-only accounts from neobanks such as Chime and Revolut, app-based lending and commission-free investing. Fintech software development companies build much of this technology, while open banking rules and banking-as-a-service partnerships let non-banks offer bank-like products.
Key Takeaways
- Fintech (financial technology) means applying new technology to financial products: payments, digital banking, lending, investing, insurance and blockchain services.
- Many neobanks are not licensed banks; they rely on partner banks to hold deposits, which changes how deposit protection works.
- Open banking rules (the EU’s PSD2 and the UK’s CMA order, both in force from 13 January 2018) opened bank data to licensed third parties.
- The April 2024 bankruptcy of banking-as-a-service firm Synapse left a shortfall estimated at $65 million to $96 million, showing the risk of layered fintech models.
- Before using a fintech app, check which licensed bank holds the money and whether that bank is covered by deposit insurance.
Fintech is becoming more popular and making its way into different industries. Traditional banks are being challenged in their own industries. Fintech software development companies build much of the technology behind this shift, from mobile banking apps to payment systems. The banking industry is changing with more innovation coming in with newly developed, more transparent, and better services. For customers, the change has mostly meant faster payments, easier account opening and lower fees, along with some new risks.
Fintech development firms usually pitch two outcomes to banks and financial businesses: a more convenient customer experience and higher profitability. Many of these firms now also build AI assistant features into banking and payment software, aiming to save staff time and improve customer support.
Organizations typically hire a fintech developer to streamline financial management processes and improve financial data security. Typical projects include digital banking and payment apps, financial dashboards, and insurance software.
Transactions, data protection and automation are all important facets of running a successful business. Modern software-development services help you hit these targets while providing your clients with a quality solution.
FinTech software development companies https://alty.co/industries/fintech/ are creating innovative products, services, and business models that are changing the way we think about finance. For instance, Robinhood, founded in April 2013 and officially launched as a mobile app in March 2015, is widely credited with pushing U.S. brokers toward zero-commission stock trading; strictly speaking, it disrupted brokerages more than banks. The future shape of banking is still being settled: fintech startups compete with banks, but many of them also depend on banks as partners.
In the past, customers got digital financial services mainly from their own bank or an established financial firm. However, with the rise of FinTech software development companies, this is no longer true. The FinTech software development companies are disrupting banking by providing their customers with a better digital experience.
What is Fintech and the Impact on Banking?
Fintech (financial technology) is the application of new technologies to financial products and services, including mobile banking, online lending, digital payments, robo-advisors and blockchain-based applications. The sector has grown quickly; India’s UPI instant payment system alone handled 241.62 billion transactions in FY 2025-26, according to figures reported for its tenth anniversary in August 2026. Fintech has pushed banks to rebuild their apps, share account data with licensed third parties under open banking rules, and partner with startups. The growth in the Fintech sector has led to more innovation and increased competition in the financial industry.
The Fintech industry is expected to keep growing, with major implications for banks, regulators, and society as a whole. The term itself is old: the earliest documented use of “Fin-Tech” appeared in The Boston Globe in 1967, and Citicorp chairman John Reed popularized it in the early 1990s. The biggest impact on everyday banking has come since the smartphone era.
Fintech is an umbrella term that covers all aspects of financial technology, including mobile payments and lending. It’s a term used to describe the new ways in which people use technology to borrow, invest and make payments, including digital currencies and peer-to-peer lending platforms. LendingClub, once the world’s largest peer-to-peer lending platform, shows how fast the sector changes: it agreed to buy Radius Bank in 2020, stopped peer-to-peer lending in December 2020, and rebranded as Happen Bank in July 2026.There are many different types of fintech services that can be used by consumers or businesses such as online banking, mobile banking, payment gateways and more.
The Rise of Fintech Software Development Companies
Fintech software development companies are specialist firms that build apps, platforms and back-end systems for banks, payment companies, lenders and insurers. Many consumer-facing fintech brands rely on this kind of outsourced or partner engineering. Fintech is a term that has been used to describe a new generation of business models that are built on digital technologies and data analytics.
Fintech businesses have grown partly by serving customers who felt poorly served by traditional banks; Chime, for example, was founded in 2012 as an alternative for people living paycheck to paycheck.The rise of fintech software development companies has made it possible for firms to develop innovative products and services that can attract customers in the highly competitive market.
How Does a FinTech Bank Work?
FinTech banks are banks that offer a wide range of financial products and services to individuals, businesses, and institutions. They use technology to provide these services in an efficient way. In practice, many app-based “fintech banks” (often called neobanks) are not licensed banks: many rely on partner banks that hold the deposits, while others, such as Starling Bank in the UK, hold a full banking license.
These banks can offer banking services such as loans, mortgages, investment advice, credit cards, etc. Most operate without physical branches or tellers, serving customers through a mobile app and website instead.
Digital-only banking is one branch of fintech that has become increasingly popular because of its convenience, low fees and app features. FinTech banks are financial institutions that offer a variety of banking services. Some also offer investment products; availability depends on the country and the provider’s license, so these services are not limited to U.S. citizens.
It is important to understand how FinTech banks work because their advantages come with a different risk structure from traditional banks. Advantages usually cited include low or no monthly fees, fast account opening, real-time notifications and budgeting tools; the main caveat is checking who actually holds the money. FinTech banks were born out of the need to provide more efficient financial services to people and corporations who are not able to access traditional banking institutions.
Where Are Fintech Companies Disrupting Banking Most?
Fintech companies have changed banking most in five areas: payments, everyday accounts, lending, investing and the plumbing that connects them. The table below lists verified examples in each area.
| Area | What changed | Verified example |
|---|---|---|
| Instant payments | Real-time transfers from a phone using a simple ID instead of account details | India’s UPI, launched by NPCI in 2016, handled 241.62 billion transactions worth ₹314 trillion in FY 2025-26 |
| Digital-only accounts | Accounts opened and run entirely in an app, often with low or no fees | Chime (founded 2012) works through partner banks Stride Bank and The Bancorp Bank; Starling Bank holds its own UK banking license |
| Lending | Online loan applications and, for a time, peer-to-peer lending | LendingClub ran the world’s largest peer-to-peer platform, then became a bank and is now Happen Bank |
| Investing | Zero-commission trading and app-first brokerage | Robinhood reports more than 27 million funded customers |
| Infrastructure | Open banking APIs and banking-as-a-service (BaaS) platforms that let non-banks offer bank products | EU PSD2 and the UK CMA open banking order, both in force from 13 January 2018 |
What Is the Difference Between a Traditional Bank, a Neobank and a Fintech App?
A traditional bank holds a banking license, takes deposits directly and usually runs branches. A neobank is a digital-only provider; according to Wikipedia’s overview of neobanks, many do not have their own banking license and instead rely on partner banks. A fintech app built on banking-as-a-service may sit one layer further away, with a technology middleman between the app and the bank.
| Feature | Traditional bank | Licensed digital bank | Fintech app on a partner bank |
|---|---|---|---|
| Banking license | Yes | Yes (for example, Starling Bank) | No; a partner bank holds it |
| Branches | Usually | No | No |
| Who holds deposits | The bank | The bank | The partner bank, sometimes via a middleman |
| Main risk to check | Bank failure (covered by deposit insurance up to the limit) | Bank failure (covered up to the limit) | Record-keeping failure at the app or middleman, which deposit insurance may not cover |
For a deeper explanation of the digital-only model, see this guide to what neobanks are and how they help businesses.
How Did Open Banking Open the Door for Fintech?
Open banking is the set of rules that lets customers share their bank data with licensed third-party apps through secure APIs. It gave fintech companies a legal way to build budgeting, payment and lending services on top of existing bank accounts.
- European Union: the revised Payment Services Directive (PSD2, Directive (EU) 2015/2366) was adopted in 2015 and came into force on 13 January 2018. It also requires strong customer authentication for most electronic payments. The European Commission proposed a third directive (PSD3) and a Payment Services Regulation on 28 June 2023.
- United Kingdom: in August 2016 the Competition and Markets Authority ordered the nine largest UK banks to give licensed startups access to customer data; the order took effect on 13 January 2018.
- United States: the Consumer Financial Protection Bureau began rulemaking under Section 1033 of the Dodd-Frank Act in 2023 to support consumer data sharing.
For how different countries regulate the sector, read how governments worldwide are adapting to the fintech revolution.
What Are the Risks of Banking-as-a-Service Fintech Apps?
The main risk of banking-as-a-service fintech apps is that deposit insurance protects against a bank failing, not against a fintech middleman losing track of whose money is whose. The collapse of Synapse Financial Technologies is the clearest example.
- Synapse, a banking-as-a-service company founded in 2014, filed for Chapter 11 bankruptcy in April 2024.
- Tens of thousands of U.S. businesses and consumers lost access to their funds, and the court-appointed trustee, former FDIC Chair Jelena McWilliams, estimated a shortfall of $65 million to $96 million between Synapse’s records and the banks’ records.
- Because Synapse was not a bank, its own bankruptcy was not covered by FDIC deposit insurance.
According to the FDIC, deposit insurance covers at least $250,000 per depositor, per FDIC-insured bank, for each account ownership category. That protection applies to deposits at an insured bank, not to crypto assets, securities or money held by a non-bank company.
What Do Fintech Software Development Companies Build?
Fintech software development companies build the products and systems that banks and fintech startups put in front of customers. Common projects include:
- Mobile and web banking apps, including onboarding with identity checks (know your customer, or KYC).
- Payment apps, wallets and payment gateway integrations for websites.
- Lending platforms, from loan applications to credit decisioning and repayment tracking.
- Financial dashboards and reporting tools for businesses.
- Insurance (insurtech) software for quotes, policies and claims.
- Anti-money-laundering (AML) monitoring, fraud detection and regulatory reporting (regtech).
- Open banking API connections that meet PSD2 or UK open banking standards.
More examples of what these teams are working on appear in this overview of fintech app development innovations.
How to Choose a Fintech Software Development Company
Choosing a fintech developer is mainly a compliance and security decision, not only a design one. A practical checklist:
- Check regulated-industry experience. Ask for past projects that passed a bank’s or regulator’s review, and which rules they worked under (for example PSD2 strong customer authentication, KYC and AML).
- Review security practices. Ask how customer data is encrypted, who can access production systems and how security testing is done.
- Confirm integration skills. The team should be able to connect to core banking systems, card processors and open banking APIs, not just build a front end.
- Clarify who owns compliance. A developer builds software; the licensed bank or payment firm stays responsible to the regulator. The contract should say who does what.
- Plan for record-keeping. After the Synapse case, make sure every customer balance can be reconciled with the partner bank’s own records.
- Agree on ownership and exit terms. Confirm who owns the source code and how the product can be moved to another team.
How Can Customers Check If a Fintech App Is Safe?
- Find out which licensed bank holds the money; reputable apps name their partner bank in their terms.
- In the U.S., check that the partner bank is FDIC-insured using the FDIC’s BankFind tool; in the UK, check the firm on the Financial Conduct Authority register.
- Understand what is and is not covered: stocks, crypto and non-bank balances are not bank deposits.
- Keep your own records of balances and statements in case of a dispute.
- Compare established providers; this list of top fintech companies in the USA is a starting point.
Frequently Asked Questions
How are fintech companies disrupting traditional banking?
Fintech companies disrupt traditional banking by offering payments, accounts, loans and investing through apps, often with lower fees and faster service. Examples include India’s UPI instant payments, digital-only accounts from neobanks and zero-commission trading from Robinhood.
Is a fintech app the same as a bank?
No. Many fintech apps and neobanks do not hold a banking license and rely on a partner bank to hold deposits. Some digital banks, such as Starling Bank in the UK, do hold a full license.
Is money in a fintech app FDIC-insured?
Only if it sits in a deposit account at an FDIC-insured bank, and only up to at least $250,000 per depositor, per bank, per ownership category. FDIC insurance does not cover the failure of a non-bank fintech company, as the 2024 Synapse bankruptcy showed.
Is LendingClub still a peer-to-peer lender?
No. LendingClub stopped operating as a peer-to-peer lender in December 2020 after agreeing to buy Radius Bank, and it rebranded as Happen Bank in July 2026.
What does a fintech software development company do?
A fintech software development company designs and builds financial software such as banking apps, payment systems, lending platforms, insurance tools and compliance systems, usually for a licensed bank or financial firm that remains responsible to regulators.
