When did FinTech become FinTech? When did technology in finance become cool?
I guess the first thing is to define FinTech, which I did badly four years ago. I say badly because my definition back then was:
FinTech [is] a new market that integrates finance and technology. This new market is a hybrid of the traditional processes of finance – working capital, supply chain, payments processing, deposit accounts, life assurance and so on – but replaces their traditional structures with a new technology-based process.
That’s not really what FinTech is. A better definition should be that:
FinTech is the use of technology to create new financial structures using apps, APIs and analytics.
In fact, my real first appreciation of FinTech was in 2005 when I met the first algorithm-based company launching a new form of finance based upon software. Since then, the market has grown and morphed into this big space of platforms and marketplaces that are offering financial services in a completely new way.
I reflect upon this today as I’ve worked in technology in finance all of my life. It wasn’t called FinTech twenty years ago. It was just technology in finance. The breakthrough came when start-up firms launched technology-based financial structures using the latest technologies, focused upon cloud and internet.
When did that happen? I would claim around the end of the last decade. After all, before 2008, there wasn’t an App Store. If this revolution is focused upon apps, APIs and analytics, there should had to be an app store around when this revolution started.
Equally, cloud was not a big factor in finance until recently. Even today, many would argue that most banks don’t get cloud. Yet, many of the start-up firms are using cloud-based services to leverage their offering, knowing that scalability comes with usage and can comfortably be handled by the cloud structures.
On that basis, let’s say FinTech is actually just over ten years old. In that time, 12,000 companies have launched focused upon changing the world of banking piece-by-piece, process-by-process. These companies have garnered billions of dollars of investment – $111.8 billion in 2018 to be exact – and spawned around 40 unicorns, billion-dollar valued firms.
Have they fundamentally changed finance and banking? No.
Have they fundamentally changed the way we think about finance and banking? Yes.
I say they haven’t changed our thinking about banking because most of us have not changed. Most of us still use the same old bank to do the same old things. However, what has been happening is the new start-ups connecting the things in finance that banks failed to connect.
They are connecting people who were unbanked with bank-style services. They are connecting people who want to move money around the world with services that are far cheaper to do that. They are enabling small businesses to do business online that was difficult to do before. They are supporting people who couldn’t get financed with people who can finance them directly.
In other words, FinTech is not replacing banks or banking, but taking friction out of old banking through technology and reaching the parts of the world that couldn’t be reached by banks through technology.
That’s the real strength of FinTech and it’s wonderful to watch.