Financial Technology or FinTech is currently on the rise and disrupts world economies. Artificial Intelligence (AI) is entering more and more tech fields, and many financial service firms recognised it as a driving force for their success plan. While Covid-19 forced us to shut down physical offices, digital solutions were a lifesaver option for financial operations. Now that FinTechs become increasingly popular, it is high time to learn more about the key field concepts.
From my experience working in a bespoke software development company, I get the chance to see the huge influence technology has on the business landscape on a daily basis. Today, every innovative enterprise relies on technology to keep the business running and grow despite the Covid-19 related challenges. We live in a dynamic digital era that required business owners to be agile and to become relevant. Moreover, modern consumers expect a flawless user experience combined with zero or very low fees, which means that FinTechs creates chances.
1. What is a FinTech Company?
FinTech as a term comes from the first syllables of “financial services” and “technology” and combines the knowledge of these two separate fields to create robust software products with automated financial services. FinTechs often begin as startup companies that want to disrupt current market practices and provide additional value to both other businesses and individual clients. They disrupt the idea of traditional banking by creating highly personalised and easily accessible financial products and services.
Their recent tremendous popularity is well-deserved as they provide certain financial services that used to be reserved for the industrial insiders only. Now, the general public and small-to-medium-sized enterprises (SMEs) have opened doors to strategic business areas, e-commerce, cost-effective alternative banking, access to stock and cryptocurrency trading, etc. This creates a pressing challenge for established banking institutions that seek ways to remain relevant in today’s FinTech era. The most promising next step for securing competitive advantage and future-proof existing services is to invest in financial software development.
2. A Brief History of FinTech
To become what it is today, the FinTech sector has survived three major periods of robust tech development that laid the foundations of the field as we know it. Fintech 1.0 is the longest one and traces back to 1866 when the transition from analogue to digital began to gain speed with the laying of the first transatlantic telegraph cable. This created the needed infrastructure to assist the first globalisation wave.
After WWI, the advancement rates grew exponentially, leading to FinTech 2.0 and the establishment of the Inter-Bank Computer Bureau in 1968 or today’s Bacs – UK’s automated payment methods. Later, the stock exchange crash of 1987 was clear evidence of the technical intertwinement of global markets. Implementing circuit breakers was an effort to control the speed of price fluctuations following the unfortunate events. Then, in 1995 began the introduction of online consumer banking, which now has reached the level of a mainstream service for most banking providers.
3. Today’s FinTech Landscape
The digitised society and globalised service palette wouldn’t have existed if it wasn’t for the conceptual model of network communication protocols, better known as the Internet. Unfortunately, after the initial boom in the 90es and the high hopes for technological and financial stability, the 2008 economic crisis once again shook the trust in traditional banks. A 2015 Gallup survey revealed that only 28% of American citizens still trusted these financial institutions and would prefer to entrust their money with technological companies instead.
As a rough estimation of the rapid adoption rates of financial technology, EY’s 2019 report showed that 96% of the total 27,000 survey participants claimed to at least be aware that there is such thing as FinTech payments of tech money transfer. Moreover, 75% of all these people said that they’ve used such services themselves. Some of the main driving forces for such rapid distribution are the attractive fees, convenience, and the high degrees of personalisation and broad feature arrays. Interestingly enough, all the tech trends surrounding FinTechs even lead to the recent creation of advanced degrees and Master programs in FinTech.
4. Which Technologies are Utilised in FinTech?
If you have to associate FinTech with a particular technology, what would that be? Actually, there are numerous next-generation technologies that are an integral part of FinTech companies and play a crucial role in this business. For example, emerging technologies such as Artificial Intelligence (AI) and its branch Machine Learning (ML) have numerous applications both in cost-effective and faster business operations but can also be a powerful asset for regulatory authorities.
Blockchain is another rapidly growing trend that disrupts existing processes and provides security and transparency levels like never before. As identified in a 2019 paper by the European Investment Bank (EIB), blockchain technology has a long list of potential use cases for international financial institutions. Although EIB disregards cryptocurrencies as feasible payment means due to their high volatility, blockchain has high chances of being employed in financial security. Thanks to its internal technological properties such as instant trade confirmation, enhanced security and immutability, blockchain can successfully be utilised in FinTechs and within the traditional banking sector.
5. FinTech Regulations Around the World
Covid-19 accelerated the dynamic distribution of FinTech firms all around the globe. One of the many pain points bank clients felt during lockdowns was the restricted access to physical bank offices. As a result, a robust solution emerged, and financial services are now offered at a distance. The numerous advantages of such innovations, including the promotion of financial inclusion, are conceivable. However, in some cases, there are considerable risks both for end customers, investors, compromising the integrity and stability of the financial system.
Finding the right balance between secure technology and financial services is a central task for lawmakers and regulatory authorities. In this fast-paced industry, new regulation initiatives take place constantly, and the LASIC principles matter a lot. A 2020 report from the Financial Stability Board (FSB) mentions data standardisation, data quality, cybersecurity and third-party dependencies as potential risks that deserve the full attention of regulators. Future challenges will aim to solve data collection and data management problems which are essential for FinTechs.
Aleksandrina is a Content Creator at Dreamix, a custom software development company, and is keen оn innovative technological solutions with a positive impact on our world. Her teaching background, mixed with interests in psychology, drives her to share knowledge. She is an avid reader and an enthusiastic blogger, always looking for the next inspiration.