FinTech & the future

FinTech is a buzzword that is often heard and used in today’s context, which is formed with the words: “Financial” and “Technology”. FinTech usually refers to the segment of the technology scene that is changing sectors such as crowd sourcing, mobile payments, money transfers, loans, fund raising and even asset management. FinTech is however a concept which is not new to us from ATMs, debit cards, credit cards, internet banking to mobile banking we continue to have basic financial needs such as borrowing, spending, savings, investing and protecting all covered by intuitive technology. This is due to constantly changing consumer expectations of financial services that are shaped by transparency, convenience, personalisation, security, simplicity and effectiveness. Globally, FinTech investments have grown exponentially in the last few years and the trend will continue as it creates opportunities for the financial sector to enhance product offerings, service delivery and cost savings. Businesses who know how to use technology and innovate will have a keen competitive advantage.

FinTech is not just “another” buzzword. It is a key enabler for transforming businesses and industries.

Here is why.

Mobile devices, such as smartphones and tablets have become a common-place. This impacts how financial services are offered and consumed. The percentage of people using mobile to purchase financial products around the globe is growing exponentially such as in India 58%, China 50%, Hong Kong 36%, Canada 28% and UK 26%. People are increasingly comfortable using online platforms that provide a variety of social networking and peer-to-peer services. The rise of FinTech provides a wealth of opportunities that has allowed e-commerce to flourish and enable a faster and more efficient cross-border financial service like lending and borrowing.

This is the future.

Somewhere within all the fire and gristle of world politics and European elections, there was a short feature in BBC Newsnight that considered FinTech and the future of the Financial Industry. Within it, Antony Jenkins, former CEO of Barclays Bank gave the opinion: “I believe that in twenty years time, we may not need banks at all.”

This opinion derives from analysis of three technologies:

1. P-2-P Lending
2. Online Exchange
3. DLT

The first is peer-to-peer lending, through which borrowers and lenders are connected without an intermediary (e.g. you might be a lender or a borrower, but there will be no credit card or a bank). The second is online (sometimes foreign) exchange (i.e. transfer funds directly from one account to another). The third technology is the most profound: distributed public ledger technology (DLT) that enables secure and transparent transactions of many types (e.g. financial or legal) without the involvement of a third-party.

Blockchain is a DLT.

We have all made investments of many kinds in the financial services industry. We hold shares, bonds or term financial certificates but what is to happen?

Well, a new industry is being born out of FinTech. It might even be that a whole new economy or economic structure is being born. First of all we will see a battle to define the business models that make money. Here we are likely to see a rerun of the tactic wherein brilliant American companies made money out of the internet through the construction of networks, network effects, economies of scope and bundles. This approach is likely to be the main one in the market and maybe this time the Europeans might grab a slice of the action as well. On the other hand, there might be a more idealistic push away from the centralised platform model to a genuine mosaic of peer-to-peer, decentralised transactions. All of the pieces are present to affect this as long as two people have computers, they can transact. Encryption costs will be met by the ingenuity of cyber-currency (e.g Bitcoin). It will be as safe as anything we have ever known and there will be neither a bank nor a platform.

Beyond this, we will recognise that a shift was affected within our lifetimes. We can store data securely. This data might be a financial transaction, a legal record, a piece of artistic content or whatever. Consider just one scenario: In a developing country that we shall call “Horizon”; all land records are placed in a DLT. This means that they can never be erased. The country then stabilises because would-be dictators cannot destroy the ledger and therefore cannot easily reallocate land to themselves or their cronies. Similarly DLT has the potential to eliminate the middlemen and corruption at the same time while people like you and me start to invest directly in the economic activities of Horizon. For example, I take a 5% stake in a new farm created by two families or you help a family build a new house by taking a 25-year stake in the value of that property. A mutual friend of ours has invested in a new manufacturing plant in Horizon. None of us has ever been to Horizon, none has paid an intermediary, but our investments are secure.

The future looms to disrupt the financial services industry which is either going to happen to you or because of you.