FINANCE TODAY | ISSUE NO.12
Technology and finance have been intertwined for a long time, dating back to 1866 when the first transatlantic cable was successfully laid, providing the essential infrastructure needed for the intense period of financial globalization between 1866 and 1913 (Gatehub, 2020). The first electronic fund transfer (EFT) system began operating in 1918, followed by the public adoption of credit cards in the ’50s (Gatehub, 2020). A major benchmark that revolutionized the finance industry was the switch from analogue to digital, which paved the way for ATMs and eventually the first digital stock markets. A major catalyst that allowed the early fintech sector to develop was the increase in accessibility of technology.
BENEFITS FOR BUSINESSES AND CONSUMERS
The current fintech market is continuously expanding with $73.5B USD of cumulative global investment in fintech companies over the first three quarters of 2019 (Ghosh, 2020). Some of the key drivers for the growth of this industry are various advantages fintech offers:
Fintech has enabled many retail banking functions to be available online, which allows quick turnaround times and the steady availability of information. AI technology has also further automated various banking processes to make them more effective.
As many banking services are also available online, fintech has made many aspects of retail banking widely available Fintech has also made some financial products more accessible for individuals who are without a current bank account.
Fintech has helped foster innovations in the cybersecurity sector, most notably with biometric authorization, which is used in banking apps. The development of Blockchain technology has also introduced a new way in which data can be stored securely on thousands of servers.
Lastly, the use of AI and automation has greatly reduced costs for financial institutions, which has resulted in the introduction of low-cost options that rely solely on AI instead of humans to do the work.
CURRENT FINTECH TRENDS & FUTURE OUTLOOK
The most discussed fintech trends at the moment revolve around AI, Blockchain, cloud, and regulatory technology (RegTech), among others. While this jargon may sound complicated, in essence, these are all just technological applications used to improve the finance industry.
AI is a method of automation that uses computer software which “learns” by recognizing patterns in data to make decisions and future predictions. Companies are able to delegate common, tedious tasks to AI such as data entry and processing actions. This allows companies to shift their attention to satisfying customer needs, with information from Capgemini showing a 65% increase in customer satisfaction by implementing intelligent automation (Majdi, 2019). A number of hedge funds also use AI to analyze data, predict market movements, and supply and demand imbalances.
Blockchain is a digital ledger of economic transactions that cannot be changed or tampered with. This technology has decreased the risk of cyberattacks, remedied inefficiencies in the back-office setups of most financial institutions, and dramatically cut costs.
RegTech is an application of AI used to automate risk assessment while delivering insights on big data. It also addresses and simplifies the cumbersome compliance processes. The CFA Institute claims that RegTech will “create a paradigm shift” in the regulatory industry in the near future (Douglas W. Arner, et al, 2017).
Ultimately, there are countless applications of technology in the finance industry, some of which have not yet even been explored. Although there are some questions about the ethics of replacing human elements of the finance industry with computer software, the overall consensus is that the best is yet to come for the fintech industry.
CB Insights. “Global Fintech Report Q1 2019.” CB Insights Research, CB Insights, 12 Aug. 2019, www.cbinsights.com/research/report/fintech-trends-q1-2019/.
Douglas W. Arner, et al. “FinTech and RegTech in a Nutshell, and the Future in a Sandbox.” CFA Institute, 1 July 2017, www.cfainstitute.org/research/foundation/2017/fintech-and-regtech-in-a-nutshell-and-the-future-in-a-sandbox.
GateHub. “How Did Finances and Technology Evolve into What Is Today Known as FinTech?” GateHub, GateHub, 13 Feb. 2020, gatehub.net/blog/history-of-fintech/.
Ghosh, Iman. “Visualizing the Current Landscape of the Fintech Industry.” Visual Capitalist, 29 Jan. 2020, www.visualcapitalist.com/current-fintech-industry/.
Majdi, Lisa. “Lisa Majdi.” Cox BLUE, 2019, www.coxblue.com/8-fintech-trends-you-should-be-watching-and-paying-close-attention-to/.