Have you ever considered the fact how much the fintech sector has grown since banks went online. Today’s generation is more focused on cashless money exchange options, for which applications and softwares are now available to better understand and manage our finances. In today’s fast paced society, even banks are offering smoother and quicker banking experiences to their customers. This evolution hasn’t come out of thin air, this has taken years of gradual evolution to get to where we’re today. Gathering more knowledge about fintech will help us in better understanding the future of fintech. Knowing the reasons behind such huge evolution will lead us to understand what services would possibly be successful over the coming years.
What is Fintech?
Fintech is an advancement in the field of finance, it aims to make financial services user-friendly. The Fintech sector has been growing at a faster pace over the last few years. Fintechs’ growth can be estimated with the idea of money invested in this sector, wherein investments showed the growth of more than double from $46 billion in 2020 to a record $115 billion in 2021. To add on, more than 30,000 research papers on fintech services have been published since 2018. This data signifies that there are a large number of investor’s groups ready to invest in evolving fintech firms. Mobile banking, cryptocurrency, internet banking, digital stock exchange, and digital money transfer platforms are all applications of fintech services.
The History of Fintech
Experts have categorized fintech’s history in three and a half different eras. These historical eras have been divided based on the level of growth that occurred over the years. This changed the relationship between consumers and their money. Let us understand about these eras in depth:
Fintech 1.0 (1886 – 1967)
This era entails constructing a good infrastructure to support financial services at a global level. Behind any strong foundation, there is the basic infrastructure that was once built to support upcoming inventions. To reach bigger heights of success there must be a clear plan that supports its integration into the prevailing and ever growing systems. Key features of this era include-
- The first transatlantic cable and Fedwire in the USA were laid in 1866 and 1918 respectively.
- This helped develop the world’s first electronic system of fund transfer with the help of technologies such as telegraph and Morse code.
- It might not seem like a big invention today, but at that time this technology was revolutionary in its powers. The capability to make money transfers over vast distances was life changing.
- Moreover, this era prepared the coming generations for evolving fintech services.
Fintech 2.0 (1967-2008)
With this phase the financial industry switched from analogue to digital services. The Fintech 2.0 era was led by the principles of conventional financial institutions. Beginning of this era occurred with the installation of the world’s first ATM in 1967 by Barclays. This was one of the first forms of digitalization in the finance world. Innovations that took place in the fintech 2.0 era are as follows-
- 1967- The first ATM was installed by Barclays.
- 1973- Foundation of the world’s first stock exchange services was laid with the establishment of NASDAQ.
- 1973- In the same year as NASDAQ was launched, SWIFT (Society For Worldwide Interbank Financial Telecommunications) was also established. Applications of SWIFT include providing a secure network for facilitating a large number of international payments across global financial institutions.
- 1997- Nationwide Building Society introduced the first ever Internet Banking service in this year, which was followed by the Royal Bank of Scotland who also introduced internet banking one month later.
- 1980s- People’s perspective of transactions changed over time and they became more welcoming towards internet banking. Banks started incorporating mainframe computers into the workforce that helped in the smooth working of these financial institutions.
- 1998- PayPal was launched in 1998 and it was the beginning of a new era which saw people going digital for money transactions.
- 2008- The financial system seemed pretty good and was blossoming until the arrival of the Global financial crisis in 2008, which brought down the Fintech 2.0 digital era of financial services.
Fintech 3.0 (2008-Current)
After the global financial crisis hit mankind, people lost trust in methods of traditional banking. This distrust was another turning point for the fintech industry and led to the beginning of a new era of fintech which was Fintech 3.0. This era came to be known as the startup era. As people were inspired to invest in this sector due to increasing growth of digital transactions. Birth of smartphones gave way to new possibilities for financial services through digital means. Key events that took place during this phase are as follows-
- 2009- Bitcoin, the world’s first cryptocurrency was introduced.
- 2011- Google Wallet was launched.
- 2014- Apple launched Apple pay.
Smartphones grew to be the primary approach with the aid of which human beings entered the web and were able to access different digital financial services platforms. Availability of smartphones with emerging technologies attracted investors to shift their focus towards startups. Moreover, open banking facilities allowed third party organizations to provide financial services to its users. Bitcoin was the first digital currency with blockchain technology to enter the market and since then numerous cryptocurrencies have paved their way towards customers’ digital wallets. Even well established banks had to adapt to new fintech technologies in order to survive an ever-changing market.
Fintech services have mostly been adopted by developing countries rather than developed countries. Developing countries were more flexible in accepting new methods of digital banking due to their evolving mindset towards technology. Today, China and India are the largest consumers of fintech services in the entire world. Fintech’s journey started with laying down cables under the atlantic and it has been growing ever since then.
Reasons for evolution of fintech 3.5 include-
- Tech-savvy younger generation with smartphones.
- Increasing incomes
- Distrust in traditional banking infrastructure.
- A scarcity of physical banking institutions.
- Convenience of usage
- Highly competitive environment
- Welcoming audience for technological growth and reforms
Advancements in financial technologies will keep driving business ideas in economic terms. Block chain technology and machine learning are major technologies that will hugely impact the future of fintechs. Banking sector is not the only sector to reap benefits of digital financial services, rather insurance companies are blooming as a recent consumer of fintech’s features. Filing claims is a huge headache for both consumers and providers. Such companies are automating insurance claims with the help of machine learning. Some people have a mindset that banks and fintechs are opposed to each other but in reality these forces are helping each other evolve. Fintech needs banks to provide capital funding and banks need fintechs to offer their customers the ease of use. In today’s times almost all the banks have tied up with fintech companies to upgrade their services for the benefit of its users. And those who have not partnered with fintech yet, do not stand a chance to survive in future. In any manner customers will be the one to enjoy their applications.