Ed. Note: This post by Shweta Rao is a part of the TLF Editorial Board Test 2018
In this Age of Digitalization, technological innovation has permeated nearly every profession. In particular, the financial services sector has seen a monumental surge in the amalgamation between traditional financial services and a variety of technological advancements. This cross-over between the two is known as Financial-Technology (dubbed as FinTech).
FinTech is a term that describes a large platform which caters to a broad set of financial services that are tailored to the pace and technology of the modern world. It comprises of any form technological advancement in the field of finances, that is inclusive of (but not limited to) more commonly- retail banking and investment as well as crypto-currencies (ex. – bitcoin), but also includes digital innovations in the sphere of financial education and literacy.
Whilst it is commonly thought that the FinTech enterprise is a rather recent development, in actuality the timeline of the industry paints the past Six Decades a picture of evolution and innovations. In the 1950’s and 1960’s FinTech eased the transaction of acquiring and spending money by the introduction of credit cards and ATMs, the 1970s and 1980 saw this type of innovation seep into the management of stocks as well as bank accounts. And in the 1990s with the introduction of the Internet, businesses based around e-commerce emerged and began their domination of the marketplace, resulting in a flourish of online stock brokering websites that were aimed primarily at retail investors. All of these innovations, from the early 1950s to the late 1990s made financial businesses, transactions and the general usage of financial services greatly convenient for customers, but it was also met with backlash from within traditional financial circles as the introduction of technology meant the replacement of human capital occupied in bank telling, record keeping, and person to person stock brokering. This wave of discontent was quickly subdued as it became evident that the usage of the machines was not only advantageous for the customers but also economically viable for those controlling various financial services.
The developments that have taken place in the past sixty years have created a sturdy infrastructural base for the FinTech industry to thrive in, by creating sophisticated systems for risk management, data analysis and trade processing tools for usage by banks and financial services firms at the institutional level. In today’s world, FinTech has even more so become a part of our everyday lives due to the invention of smartphones, which enables one to have control over any and all financial services, at any point of the day. Whilst these aforementioned systems of infrastructure are not apparent to the everyday user, they form the basis of a multimillion dollar industry with the objective of becoming the backbone of financial services.
These technology linkup services are usually rendered by the way of collaborations between financial market giants and, companies like Bloomberg, Thompson Reuters, Misys and SunGard, who have become market leaders, overtaking the smaller service providers, and have become the bedrock for the institutional infrastructural framework, some banks such as HSBC and Credit Suisse have even begun their own in-house innovations that cater specifically and wholly to their customers. But off late, due to the rapid rate of growth of the industry specialized start-up companies have started disaggregating the hegemony of the global banks.
FinTech, is one of the fastest emerging industries in the world’s economy, with an estimated growth in global investment of 2,200% from $930 million in 2008 to more than $22 billion in 2015. The Euro-American markets have at the moment occupied the market of FinTech with New York City, London and Amsterdam racking up the highest profits from the FinTech industry. Australia as well has been riding the FinTech Wave and 9% of its GDP comprises of profits from the FinTech industry.
As with any industry that is a vanguard of innovation, there are always naysayers and risks of varying severity involved. Finance in specific has always been seen as especially vulnerable as the industry depends of the timely acquiring and usage of knowledge rather than any specific good. During the initial years of the FinTech industry, the backlash received was wholly concentrated on the disposal of human capital. In modern times, the concern has shifted the fact that since the entirety of the service is rendered through the internet or networks, opens up the same for attacks from malicious hackers, as well as the concern of appointment of liability in issues of data breach.
In both of these cases, FinTech companies are highly regulated by respective national legislations that outline and guide the functioning of FinTech companies in so far as protecting the various stakeholders. Leading global Fintech companies are proactively turning to cloud technology to meet increasingly stringent compliance regulations, and to also ensure protection against malicious hackers. On the contention of assignment of liability, the 1999 American legislation- the Gramm–Leach–Bliley Act, which is followed widely across the world, firmly assigns liability on the respective FinTech Company for any data breach of customers, irrespective of how large or small it may be.
Whilst the abovementioned regulations do solve issues of data security and transaction transparency, over regulation of the industry is leading to service providers being unable to be governed by the Invisible Hand of the marketplace, which is proving to be unraveling the very USP of speed and convenience of the FinTech industry.
The FinTech industry shall have, for the foreseeable future, an upward incline in market profits, and given that this is an industry that has weathered decades of technological development and economic upheavals, innovating around iron clad regulations shall not be an insurmountable issue. The 2010s is predicted witness a near total takeover of the FinTech industry in global markets, especially Blockchains, which have the potential to minimize the cost of transacting, and revolutionize financial systems.