What is FinTech? More than a Disruption
What is FinTech?
FinTech (short for financial technology) is innovative and disrupting the financial services industry by making banking and finance easier and accessible to all. FinTech companies consist of startups and established companies that focus on enhancing products, services, and access from what has been traditionally provided by banks and other financial institutions.
Software's disruptive impact on the finance industry is directly tied to the management and flow of information. FinTechs are able to quickly gather and disseminate information that in turned is being used to offer customized, enhanced benefits and services to clients like never before. This heavy responsibility of data management makes the issue of security and data breaches paramount to the developing mass adoption by customers and regulation by government.
History of Finance and Technology
The modern era of FinTech can be traced as far back as 1865 with the invention of the pantelgraph by Giovanni Caselli, which was a device used to perform signature verification for bank transactions. With the installation of the trans-Atlantic cable in 1866, the framework for globalization in finance was set.
Federal Reserve Banks established the Fedwire Funds Service in 1918, to help connect regional banks across the country and allow funds transfers and settlement domestically.
In 1919, the world-reknown economist, John Maynard Keynes, first spoke about how finance and technology were connected in “The Economic Consequences of Peace.”
Credit cards were first distributed in the 1950s as an alternative to transacting in cash, with the first of its kind coming from Diners Club. The first ATM (Automated Teller Machine), providing the ability to withdraw cash at anytime, wouldn’t debut until 1967 (from Barclays Bank).
To support the growing need for communications in FinTech at the time, the global telex network is created in 1966. Clearing House Interbank Payments System (CHIPS) is developed in 1970 to allow large banks to transfer funds internationally in USD. This would then be followed by SWIFT in 1973, the Society for Worldwide Interbank Financial Telecommunications, to address issues with payments and disputes across borders.
The 1980s introduced electronic trades (online brokerage E-trade, 1982), online banking (Nottingham Building Society in Britain, 1983), online shopping (Gateshead SIS / Tesco system, 1984), and consumer check-writing program called Quicken (Intuit, 1984).
The usage of financial technology as an official term in financial services took place in 1993 with the launch of the Financial Services Technology Consortium, by Citicorp. By 1998, most banks in the US had websites in use that allowed transactions.
The first version of cryptocurrency, bitcoin, was launched in 2009 with the intent to eventually replace the current financial system with an independent digital currency platform, able to operate securely and independent of intermediaries.
Banks and FinTechs
As smartphones and technology made most areas of life more convenient, FinTech companies grew to present-day popularity by focusing on specific customer pain points and then quickly solving them. Companies like PayPal, VenMo, and Zelle, were able to design new solutions that are faster and simpler, resulting in streamlined processes, user friendly apps, and easy to understand products.
These benefits made an impact on the industry, but only earning a small portion of total market share for FinTechs. Clients with long-standing relationships and lack of trust, resisted making a permanent change away from banks, but also requested more innovative, enhanced experiences from their financial institution.
Today’s FinTech industry is divided into the following sectors:
Personal Finance (e.g. CreditKarma, Mint)
Payments (e.g. Square, PayPal, Stripe, WePay)
Lending (e.g. LendingClub, Affirm, Earnest, Prosper)
Retail Investments (e.g. Robinhood, Wealthfront, Personal Capital)
Institutional Investments (e.g. Kensho, Quovo, Addepar)
Crowdfunding (e.g. Kickstarter, Tilt, IndieGogo)
Consumer Banking (e.g. Simple, Chime Bank, Moven)
Financial Research (e.g. Seeking Alpha, Stocktagon)
Business Tools (e.g. Xero, ZenPayroll)
Remittances (e.g. Xoom, WorldRemit, CurrencyFair)
Banking Infrastructure (e.g. Plaid, Spout, DemystData)
Fintechs began working with banks to blend their innovative insights and design, with the bank’s tenured history, deep customer base, and regulatory knowledge. Partnerships have become commonplace in the industry, with some banks deciding to create something in-house, or purchase smaller tech companies outright.
Outlook of Continuous Growth
As the rapid waves of change in finance continue to increase with the inclusion of blockchain, artificial intelligence, and machine learning in financial services, the outlook is for further progress when it comes to managing, accessing, and utilizing finance in quick and convenient processes which may or may not be available at large or local financial institutions.
As banks and credit unions worldwide decide on what investments to make in technology, existing customers and prospective clients monitor closely where they should keep their financial relationships.
Some recent FinTechtris articles on fintech trends: