Evolution of financial technology

“Financial technology” or “FinTech” refers to the use of technology to deliver financial solutions. The term is originated from the early 1990s and referred to the “Financial Services Technology Consortium”, a project initiated by Citigroup in order to facilitate technological cooperation efforts. The term now refers to a large and rapidly growing industry representing between US$12 billion and US$197 billion in investment as of 2014. FinTech today is often seen as a uniquely combination of financial services and information technology. However, FinTech is a very broad sector with a long history.

First, FinTech is not an inherently novel development for the financial services industry. Indeed, the introduction of the telegraph (first commercial use in 1838) and the laying of the first successful transatlantic cable in 1866 (by the Atlantic Telegraph Company) provided the fundamental infrastructure for the first major period of financial globalization in the late 19th century.

Subsequently, the introduction of credit cards in the 1950s and ATMs to replace tellers and branches in the 1960s marks the evolution of FinTech. In the 1970s, electronic stock trading began on exchange trading floors. The 1980s saw the rise of bank mainframe computers and more sophisticated data and recordkeeping systems. In the 1990s, the Internet and e-commerce business models flourished. The result was the introduction of online stock brokerage websites aimed at retail investors, replacing the phone-driven retail stock brokering model.

These five decades of developments have created a financial technology infrastructure which most people never think about, but use almost every day. It’s also important to note that throughout that 50 year period, FinTech developments were also creating more sophisticated risk management, trade processing, treasury management and data analysis tools at the institutional level for banks and financial services firms.

The financial crisis of 2008 was a catalyst for the growth of the then burgeoning fintech market, albeit due to increased oversight that was fueled by consumer discontent. The ubiquity of mobile devices, wide use of smartphones, a massive increase in the availability of widely accessible globally transparent data, coupled with a significant decrease in the cost of computing power, and a significant demographic shift (increasing of ‘millennials’ cohort) are considering as the enabling factors of FinTech evolution. Talented entrepreneurs opened a whole range of ideas to significantly improve financial products, methods of their sales and marketing, and make them more customer-oriented.

FinTech solutions are cutting costs and improving the quality of financial services, creating a more diverse, and hence stable, credit landscape and bringing new ways of assessing risk. The role of FinTech within the financial services sector will continue to evolve. We will drive more innovation, generate more productivity and bring necessary products to an underserved market.

Sources:

• 1.    Jerry W. Markham, “A Financial History of the United States: From Christopher Columbus to the Robber Barons” (2002)

• 2.    The Evolution of FinTech: A New Post-Crisis Paradigm? Douglas W. Arner, Jànos Barberis, Ross P. Buckley – The University of Hong Kong, Faculty of Law.

  – Research Paper No.2015/047 (2015)

• 3.     http://www.forbes.com/sites/falgunidesai/2015/12/13/the-evolution-of-fintech/#2273e0a0184c

• 4.     http://informes.pwc.es/fintech/assets/pwc-fintech-global-report.pdf

• 5.     https://assets.kpmg.com/content/dam/kpmg/pdf/2016/03/the-pulse-of-fintech.pdf

  "Экономика и социум" №5(24) 2016