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What is Fintech?

Fintech is a term used to describe the utilization of novel technologies to improve and automate financial services. The term is typically used when describing the growing number of startups that use new technologies to disrupt traditional providers of financial services by offering new financial products & services such as online banking, digital payments and online lending.

However, Fintech is actually just a new term for an old concept that dates back to ancient times.  A case in point is the invention of paper in China in the 7th century, a major technological development that paved the way for paper currency, and eventually fiat currency. The development of the payment card systems in the 1950s (e.g., Amex, Visa & Mastercard) is a more recent example of technological development that lead to a major change in the way consumers paid for goods and services. Yet another recent example is the emergence of the automated teller machine (ATM) in the 1960s, which represented a major change in how customers could conduct basic banking transactions.

Today, Fintech companies often use data and analytics to improve the efficiency and effectiveness of financial services, and may use artificial intelligence and other advanced technologies to create new financial products and services.

The 2000’s have seen what many would call a “Fintech revolution”. This is the result of a confluence of factors:

  • Technological innovation and new business models (mobile/internet technologies)
  • Deregulation of the financial sector
  • Low interest rates

The Fintech revolution of the 2000’s has both created new structures that has transformed financial services and introduced new financial products.

Some key trends that have characterized the Fintech revolution in the 21st century are:

  • Digitalization: The widespread adoption of smartphones and the internet have made it possible for consumers to access financial services online. This has led to the rise of online banking, mobile payments, and digital currencies.
  • Disruption of traditional financial services: Fintech companies have begun to challenge traditional financial institutions by offering more convenient and cost-effective financial services. For example, online lenders have begun to offer loans at lower interest rates than traditional banks.
  • Innovation in payments: The development of new payment technologies, such as contactless payments and mobile payments, have made it easier for consumers to make transactions.
  • Emergence of new business models: Fintech companies have begun to experiment with new business models, such as peer-to-peer lending and crowdfunding, which has allowed for the democratization of finance.
  • Use of data and analytics: Fintech companies have begun to leverage data and analytics to create personalized financial services, such as robo-advisors.
  • Use of blockchain technology and cryptocurrencies: The emergence of blockchain technology and cryptocurrencies, have allowed for a new way to transfer value securely, fast and cheap.
  • The network effects of the new technologies make it easier for disruptors to challenge incumbents and traditional players.

To date, payments is probably where the Fintech revolution of the 2000’s has had the most impact. However, recent developments in AI, as showcased to the public by firms such as OpenAI and its chatbot ChatGPT and DALL-E 2 system, make it likely that in the years to come, other areas in the financial services sector will be increasingly impacted by technological developments.


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