Before we had fintech we had… financial technology

If you live in the world, you’ve read the term fintech about a hundred times this week. By now everyone’s figured it out – FINancial TECHnology. It’s Venmo, Bitcoin and that handy feature on your banking app that lets you pay your ConEd bill from your phone.

There’s a good chance you already know a lot about how technology is shaking up the financial services industry, too. What you might not realize, however, is that financial technology isn’t new. Sure, we only just started paying our friends back on Venmo and considering the endless uses of blockchain, but financial technology has been around for at least a few decades – or if you really want to stretch it, since the invention of the pantelegraph in 1865.

But forget the 19th century – let’s go back just 30 years. Maybe you’ve heard of the Bloomberg Terminal? Bloomberg was founded in 1982, followed closely by Murex in 1986. PayPal has allowed us to transfer money since 1998, and Backstop’s SaaS solutions have enabled managers to store investment data in the cloud since 2003.

So if we’ve had it all this time, why are we suddenly talking so much about fintech?

Hashtag fintech, hashtag disruption

Until recently, financial technology consisted mostly of business-to-business software companies like Backstop, which build solutions to help bankers and investors work more efficiently. The recent shift to consumer fintech platforms in a variety of verticals has brought this nearly age-old industry into the spotlight. In fact, research suggests 62% of consumers would consider switching their current banking account from a traditional banking institution to an alternative financial provider.

Once a welcome enabler, the modern fintech company promises to disrupt the financial industry and gobble up a significant percentage of market share. Banks are also under threat as fintech permeates the industry, offering alternatives to the way we manage and invest money, and obtain loans.

With the looming threat of “disruption” to the industry, banks are scrambling to “fintegrate.” Prominent financial institutions have acquired fintech startups and recruited engineers away from Silicon Valley. JP Morgan, desperate to attract top tech talent, has even loosened up its notoriously stiff culture. Its new office at 5 Manhattan West is home to 1,500 digital staffers who are allowed to dress casually and play video games midday.

Meanwhile, as banks play catchup and scramble to appeal to millennials, venture capital continues flowing into fintech, propelling its growth. Last year global investments in fintech companies topped $19 billion, and Q1 of 2016 showed continued investor confidence, as investments in fintech reached $5.3 billion, a 67% increase over Q1 2015, according to Accenture.

Accessibility and the democratization of financial services

The consumerization of fintech has opened up fintech’s niche market, bringing formerly unheard of benefits to the masses. The game has changed: mobile payments, peer-to-peer lending and crowdfunding platforms offer services directly to the consumer, who oftentimes isn’t paying a cent for services rendered.

Increased accessibility begs the question of whether fintech can democratize financial services, providing formal financial tools to the 2 billion people throughout the world (50% of all women) who are still “unbanked.” Lowered costs of services and the ability to make digital payments will likely give millions of people access to new forms of money management tools they previously could not utilize. Financial inclusion has the potential not only to change the lives of these individuals, but also to advance society as access to accounts, savings and credit is a basic component of a strong economy.

As walls collapse, consumer expectations build

Mounting pressure from emerging fintech companies is forcing regulators to address legal problems that sit at the intersection of finance and technology. For example, fintech firms currently have no choice but to pay big banks for second-hand access to the UK payments system because privileges to secure settlement accounts with the Bank of England are exclusively available to licensed banks. Tech firms are negotiating these rules in an effort to simplify and lower the costs of their operations.

As tech firms succeed in simplifying operations, consumers’ expectations rise. Not long ago, transferring money to an account with a different bank took a couple business days and included a fee. Fintech has empowered anyone with a phone to essentially text money instantly, free of charge. Banks have a huge opportunity to meet customers’ heightening demands, especially by leveraging their pedigrees to establish trust.

Whether fintech has the potential to shake up financial services to the extent some have predicted is still to be determined. What’s certain is that, with investments in the industry continuing to grow, and experts predicting a $138 billion market opportunity in the US alone, fintech isn’t going anywhere. After all, it’s been here all along.




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