The union of financial services and information technology, or Fintech for short, is one of the most exciting – and fastest-growing – areas in global business today. Although people out there say that the emergence of the “Fourth Industrial Revolution” is relatively recent, if we go deeper into the relationship of financial services and technology, we can easily figure out that they “got entangled” in the distant past. The novel definition we use in the 21st century relates to a pretty old relationship.
According to research, the evolution of Fintech can be divided into 4 key periods.
The period from 1866 to 1967 was the earliest stage of finance-technology marriage; it was characterized by the invention of the telegraph, steamships, canals, railroads, and other such technologies. All this enabled financial globalization, as it became possible to maintain the speedy transfer of financial information and transaction worldwide. In 1920, John Maynard Keynes (a pretty famous British economist) gave a pretty clear and detailed description of the processes happening during the 1st age of economic globalization, writing about the ability of every Londoner to order “various products of the whole earth upon their doorstep, while sipping morning tea in bed”.
While the speedy development of financial services was suspended for some time during the post-war period, information technology and communication sectors were being rapidly developed. Texas Instruments developed the first handheld financial calculator. IBM brought code-breaking tools to the market, Xerox Corporation produced the first fax machine, and finally, the USA’s citizens were introduced with the first credit cards.
The second period of finance-technology interlinkage starts in 1967 by introducing the first “Automated Teller Machine or in short ATM”. It gives commencement for the digitization of financial services. In 1970, CHIPS (Clearing House Interbank Payment System), the United States private clearinghouse for large-value transactions, took place. It was followed by establishing the Society of Worldwide Interbank Financial Telecommunications (SWIFT) in Brussels in 1973 that aimed at the interconnection of domestic payments systems across borders.
During this period, financial institutions started replacing paper-based mechanisms with computerization and risk management technology. One of the most well-known examples of that era would be designing in-house computer systems by Michael Bloomberg that were in ever-enlarging usage in financial institutions.
The interconnectedness of Fintech was perfectly illustrated, and its effectiveness was perfectly proved in the year 1987. While decades later, the causes of the global, sudden, severe, and largely unexpected stock market crash are still disputable, it is widely believed that it was the impact of computerized trading systems that bought and sold automatically, as based on pre-set price levels.
However, financial services had become predominantly digitized by the end of the 1980s, the advent of the Internet had thoroughly changed the banking technology future. At least 1 million people became online customers of 8 US banks, setting the stage for developing similar systems worldwide.
You all remember the 2008 global financial crisis, sure you do. It acted as a turning point in the union of financial services and information technology; it changed traditional banks’ main focus to Fintech banking. With the advent of new banking channels, the outdated conception of old banking branches has been completely wiped out. Instead, we are presented with a new reality of 24/7 reachable digital banking. Organizations that previously stayed away from investing in Fintech innovation faced a new reality in the twenty-first century; they understood the explosive need to innovate and meet the customers’ demands and expectations. A reason why the share of investment in Fintech has grown from five percent to almost twenty percent, which is approximately equal to the GDP (Gross Domestic Product) of the financial industry.
Technologies that might have seemed somewhat unachievable ten years ago are a reality today in delivering financial products. Online banking applications, pay-down services, automatic savings are some of the examples. Fintech companies started actively integrating voice technologies to complete various banking tasks; today, one cannot imagine a daily banking routine without chatbots‘ eminent presence.
According to TechCrunch, by the end of 2019, ninety percent of mobile users had paid online, while thirty-six percent of them used a payment application.
With that all said, now let’s get down to the real question.
Future of Fintech
If you listen to the experts, they think that this year will bring a humongous change in the Fintech industry’s future. Goldman Sachs predicts that the worldwide Fintech pie will reckon up over four trillion dollars by the end of this year. Let me give you a brief overview of the four main trends in Fintech banking that will disrupt the industry and drive immense growth.
The age of traditional banking is fastly approaching its expiry date and will soon be replaced by totally digital banking. Most of the existing banks already offer global payments and transfers virtually, and those who don’t yet will soon join the bandwagon. The ability to trade currencies and cryptocurrencies online will come daily. According to the forecasts, it will lead to a drop in physical bank visits by thirty-six percent by the end of this year.
Blockchain will get going
Unless you were living under a rock, you must have heard the term ‘Blockchain’, as it was one of the widely discussed topics last year. When compared to other spheres, blockchain’s embodiment into financial services was relatively slower. The future of Fintech is intimately tied to blockchain technology, and the primary reasons behind it are the transparency and trust it guarantees, significantly decreasing the time needed for transactions, and improving the cash flow.
The advance of monolith services
Many Fintech companies divided their application logic into small independent services to reduce their costs connected with delivering particular services. Unfortunately, it turned out that their architecture is not so endurable, and managing them takes more resources (both time and money) than it was previously expected.
So, in 2020 Fintech companies are likely to go for monolith services instead, where numerous microservices will be held together and managed concurrently.
The technologies have already come to active usage while developing financial products and services. According to research conducted by the National Business Research Institute and Narrative Science, thirty-two percent of providers have already been using AI technologies like voice recognition, predictive analytics, logical reasoning, and others.
Such statistics are predicted to increase in 2020 and beyond, encouraging more investment in robots and AI solutions.
The fintech industry, without any doubt, is one of the most densely regulated industries, almost every other day, we experience headlines connected with financial products cybercrimes. As the industry expands, so will the security risks. Thus the governments will have to develop new regulations and legislation on the national level to counter them. With that said, thank you for reading.