What is Fintech?
Considering some definitions provided by Oxford English Dictionary (n.d.) and Shueffel (2016), Fintech is represented by a set of computer technologies that are to assist in and enable financial services to improve such aspects as customer service or data processing. Despite that some definitions presume its centrality to financial services, some highlight its external nature, as a variety of processes being added to existing infrastructure (for example, the addition of new technology like automated processes or machine learning). The term among the folk has started its rise in 2011, with some rare mentions to skyrocket starting from 2015, as many aspiring post-crisis startups and technologies began to receive prominence.
Common Features of Fintechs
Fintech organisations tend to have a variety of similar traits that are worth highlighting.
- Fintech businesses are “need-focused,” which means they unbundle financial services and rely on customisation to create personalised solutions.
- They tend to expand the services of incumbents to previously ill-covered customer groups or create totally new forms of service.
- Customers, as a result of their strategically central role in developing the businesses’ value propositions, are facing the blurring line between who makes products and services and who utilises them, since the creation of a platform frequently entails just bridging the network rather than fully separating each participant.
- Quite often one of the premises is to take out third parties or additional steps of the process.
- The need for expansion and fresh views on user experience/user interface are pushing forward the simplicity and “playfulness” of brand interactions.
In its quest to capture the landscape of Fintech in Australia, KPMG (2020) divided Fintech among the following domains (plus a couple of other we considered essential):
- Data Analytics
- Personal Finances
- Capital Markets
- Credit Markets
- Corporate Support Functions
- Digital Banking
In a study report published in 2015, Arner et al., (2015) attempted to evaluate the evolution of Fintech. “The term’s roots may be traced to the early 1990s and related to the ‘Financial Services Technology Consortium,’ an initiative started by Citigroup to assist technical collaboration efforts,” write Ibid. Indeed, the authors’ source, an article published by the media site American Banker, references a Citigroup initiative called “Fintech” that began in the early 1990s (Hochstein, 2015). The American Banker also released another story titled “Friday Flashback: Did Citi Coin the Term ‘Fintech’?” on the term Fintech. “[t]he story below published in American Banker in August 1993, and features the first use we could discover of the now-trendy phrase ‘Fintech’”, according to an editor’s note (Ibid). It references Fintech as a project label used by Citibank. This is the first paper cited by Hochstein (2015) and subsequently Arner et al. (2015) when claiming that the term Fintech originated in the early 1990s.
Despite this, the word Fintech was coined in 1972. Mr Abraham Bettinger, from Hanover Trust, provided the following definition in a scholarly article detailing models on how he had analysed and solved daily banking problems encountered at the bank (Oshodin et al., 2019): “Fintech is an acronym that stands for financial technology, combining bank expertise with modern management science techniques and the computer (Bettinger, 1972). Bettinger’s work was not wholly overlooked during his lifetime, as evidenced by an early reference of his work by Warschauer several years after (Oshodin et al., 2019). Even so, it’s possible that the Citibank Fintech project’s imitators in the early 1990s were unaware of Bettinger’s study and chose the same title for their initiative by chance. It is important noting at this time that neither academia nor practice can be definitively recognised as the birthplace of the word Fintech, given the phrase was coined by a practitioner in a scientific journal article.
History of Fintech
Yet, the development itself did not seem to start that late and could be associated with early 1950s, as the first stage of the transit from physical means of information exchange to digital among financial service providers. It could be linked to first attempts to create a credit card by Diners Club International (n.d.), or progress on Federal Reserve Wire System. According to Nelson (2018), in late June 1967, Barclays installed the first ATM. Though quite coarse when it comes to functionalities, such as a limit of £10 or frequent bugs, it has marked a huge leap forward as it lifted long queues and expanded the service opening time.
Later, the 1970s showcased some other major shifts such as the FINRA-led creation of Nasdaq, which could partly be regarded as the first digital exchange. Though, it needed years to shift from the over-the-counter nature and meaningfully automate reporting and trading (Widder, 1992). One would also mention the creation of SWIFT, i.e. the framework for international bank communication. Its exchange software and messaging standards created a fertile ground for automated and unimpeded interaction between thousands of institutions (SWIFT, n.d.).
Then, the process gained momentum: the 1980s opened the stage for online banking (yet only partial); the 1990s popularised e-commerce and introduced more participants to this movement. Though the biggest impact was brought by the global shake-up, as old institutional arrangements have not only led the world economy to turmoil but also gave birth to a massive distrust in the system by people. As a result, ideas for alternatives were welcomed, ranging from less conventional ways to improve the legacy systems (i.e. make them more transparent or reduce transaction costs) to totally new ways of thinking (like that proposed by blockchain). As some of these endeavours have proved utterly successful, more attention has been paid to corresponding ventures in the following years. Though, it is not yet known whether this phenomenon will peak and fade any time soon, or whether any single set of arrangements will displace the other.
Thanks to some research provided by Deloitte (n.d.) and CFTE’s older publications, here one could find a list of some of the most common terms associated with Fintech, and thus be able to expand their knowledge.
- Angels: wealthy individuals who contribute funds to a startup company in exchange for a stake in the company — typically in the form of stock or convertible debt.
- Alternative Lending: a term used to describe a variety of lending choices other than a standard bank loan, more flexible in terms of repayment and approval, but characterised by higher interest rates.
- API (Application Programming Interface): a collection of processes, protocols, and tools for developing software applications that enables various systems or applications to interact with one another. This enables for application customization based on the user’s needs and can help to streamline day-to-day activities.
- Blockchain: an increasing set of cryptographically linked records. A cryptographic hash of the preceding block, a timestamp, and transaction data are all included in each block. To get into the hash, the timestamp validates that the transaction data existed when the block was published.
- Cloud Computing: the supply of computer services via the Internet (the cloud), including servers, storage, databases, networking, software, analytics, and intelligence, in order to provide speedier innovation, more flexible resources, and economies of scale.
- Datafication: the process of quantifying parts of life which were not measured before and converting them into data that can be assigned a value. It is used in financial services to improve decision-making quicker and even more precise.
- DMP (Data Management Platform): a software system for gathering, organising, and activating first-, second-, and third-party audience data from a variety of online, offline, and portable channels. It then takes that information and utilises it to create extensive consumer profiles that are used to drive targeted advertising and customization efforts.
- ICOs (Initial Coin Offerings): a procedure or event in which a corporation (particularly a start-up) tries to generate funds by selling a new cryptocurrency, which investors can buy in the hopes that the cryptocurrency’s value will rise, or to subsequently swap for services provided by the firm.
- Neobanks: a form of direct banks that operate entirely online and do not have any physical branches to provide services.
- Open Banking: refers to a bank’s affordance to share account information with other allowed third parties. For customers, the goal is to allow these third parties to provide a more personalised service based on their buying patterns.
- Platformisation: characterises digital platforms’ penetration of infrastructures, economic processes, and political frameworks in many economic sectors and spheres of life, as well as the reorganisation of cultural practises and imaginations around these platforms.
- Smart Contracts: a self-executing portion of script that lets a transaction to be processed and verified. A smart contract is often implemented on a decentralised ledger, such as a blockchain, that monitors and enforces the contract.
Once focused on P2P lending, Lufax is a technology-driven online Internet financial marketplace that provides retail credit and wealth management services.
Made as an experiment for the Russian market, Tinkoff is the region’s digital banking champion, highlighting openness and big data solutions.
Brex, a shining example of a Silicon Valley unicorn, fills a developing vacuum in banking ambitious tech startups, assisting them with cash management and credit needs.
The centricity of technology has provided massive regulatory advantages, as many entities to challenge the traditional incumbents were not subject to regulatory scrutiny. However, as they were increasingly becoming full-fledged players in the industry, be them independent organisations or vassals of larger traditional banking institutions, they are now getting exposed to existing regulation or supplied with the new one.
The major driver of this attention, however, is the state’s sensitivity to potential contagion effects, as consumer bases of the former are growing remarkably. Special attention is currently paid to blockchain-related phenomena, as state representatives and major institutions behind are utterly uncomfortable with potential economic shocks, Ponzi schemes, loss of central power and transaction transparency/irreversibility.
Fintech Largest Centres
Notable Fintech Unicorns: Pontoro, FlyFin AI, Tipalti, Oportun, Brex
Notable Fintech Unicorns: Starling Bank, TrueLayer, Funding Circle, Monese, Monzo
Notable Fintech Unicorns: Lemonade, Policygenius, Betterment, Stash, Forter
Notable Fintech Unicorns: Bitmain, Rong360, Tiger Brokers, TalkingData, WeBank
Notable Fintech Unicorns: Lufax, Onchain, Riskstorm, Juxinli, Dianrong
Notable Fintech Unicorns: N26, Friday, Wefox Group, Finleap, Raisin
Notable Fintech Unicorns: Froda, Bitrefill, AidHedge, Ponture, Mitigram
Notable Fintech Unicorns: BrickX, MoneyMe, Persollo, Basic, Brighte
Notable Fintech Unicorns: CoinGecko, Kucoin, Huobi, First Data, Seedly.
Notable Fintech Unicorns: Airtel Payments Bank, IndiaLends, Spice Money, InstantPay, EKO India Financial Services
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