Introduction to Fintech
Financial technology (Fintech) is transforming the world of finance and the wider world.
New players such as start-ups and technology firms are challenging traditional players in finance, bringing democratization, inclusion and disruption.
Traditionally, banks were good at keeping up with technology in many cases, being some of the early adopters, but all of this really changed during the global financial crisis in 2008.
After the 2008 crisis, banks were busy dealing with newly imposed regulations and compliance. Innovation became a distant priority. But at the same time, some of the biggest game changing innovations were taking place. Uber, Whatsapp, Wechat, Airbnb and many others were changing the way customers’ experience services in many industries, except financial services. And this gap is what the Fintech industry wanted to tackle.
Also the 2008 crisis caused job losses in the financial sector, particularly amongst younger people. This drove many youngsters who had been looking forward to very good careers in the context of financial sector to seek other opportunities. It is very frequently the case that they have gone to start new fintech companies.
And the 2008 crisis induced rigid regulatory changes, ultimately resulted in a dramatic decrease in profitability of financial institutions as well as massive increases in compliance and regulatory costs. In many ways, the only way that these new requirements could be addressed was via technology.
Also the 2008 crisis has resulted in a loss in trust in the traditional financial institutions among youngsters and they would be more comfortable doing financial transactions via Alibaba, Tencent or Google rather than via HSBC, Barclays or Bank of America.
These features together along with the launch of the first iphone in 2007 which has already sold over a billion around the world and other smartphones set the stage for the transformation in fintech; and these combination has led to an explosion in startups.
One very high profile startup is Bitcoin, a cryptocurrency based on blockchain or distributed ledger technology. Other startups were mostly in the forms of alternative finance like peer-to-peer lending or crowdfunding.
But in fact, startups in the context of fintech are even not new. One of the internet bubble era in the late 90s startups was Paypal. Paypal today is one of the world’s most significant payment services providers along with traditional firms like Visa and Mastercard.
And actually some of the biggest game changing technological innovations took place not only by Fintech startups but by large technology firms like Amazon, Tencent, Antfinancial and so on. And in the future there’s actually a big chance that some of the providers of financial services, at least the interface that clients will be using may be these large technology firms.
(Rajkumar Kanagasingam is the Founding President of Fintech Association of Sri Lanka (FASL) and has participated at a number of international fintech forums (in India, Dubai, Hong Kong, Shanghai, Singapore, Vietnam) as a speaker, moderator, facilitator or a jury.)