![Fintech Meetup of the Asia-Pacific Executives Forum at Hilton Colombo](https://upload.wikimedia.org/wikipedia/commons/c/c0/Fintech_Meetup_of_the_Asia-Pacific_Executives_Forum_at_Hilton_Colombo.jpg)
Fintech, a portmanteau of "financial technology", refers to firms using new technology to compete with traditional financial methods in the delivery of
financial services
Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...
.
Artificial intelligence
Artificial intelligence (AI) is intelligence—perceiving, synthesizing, and inferring information—demonstrated by machines, as opposed to intelligence displayed by animals and humans. Example tasks in which this is done include speech re ...
,
blockchain,
cloud computing
Cloud computing is the on-demand availability of computer system resources, especially data storage ( cloud storage) and computing power, without direct active management by the user. Large clouds often have functions distributed over mul ...
, and
big data
Though used sometimes loosely partly because of a lack of formal definition, the interpretation that seems to best describe Big data is the one associated with large body of information that we could not comprehend when used only in smaller am ...
are regarded as the "ABCD" (four key areas) of fintech. The use of
smartphone
A smartphone is a portable computer device that combines mobile telephone and computing functions into one unit. They are distinguished from feature phones by their stronger hardware capabilities and extensive mobile operating systems, whic ...
s for
mobile banking
Mobile banking is a service provided by a bank or other financial institution that allows its customers to conduct financial transactions remotely using a mobile device such as a smartphone or tablet. Unlike the related internet banking it uses ...
,
investing
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing i ...
,
borrowing services,
and
cryptocurrency are examples of technologies designed to make
financial services
Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...
more accessible to the general public. Fintech companies consist of both
startups
A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend t ...
and established financial institutions and technology companies trying to replace or enhance the usage of
financial services
Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...
provided by existing financial companies. A subset of fintech companies that focus on the insurance industry are collectively known as insurtech or insuretech companies.
Key areas
Academics
Artificial intelligence (AI), blockchain, cloud computing, and big data are considered the four key areas of FinTech. Artificial intelligence refers to the intelligence demonstrated by machines, in contrast with “natural intelligence” displayed by humans and animals. AI is assuming an increasingly important role in traditional banking as it provides technologies such as voice recognition, natural language processing, and computer vision for user-account management and fraud detection, machine learning methods and deep learning networks for anti-moneylaundering and credit modeling. Mobile and internet payment systems are closely connected to cloud computing. The past ten years have witnessed increasing adoption of cloud computing by financial institutions around the globe.
FinTech Industry
Financial technology has been used to automate
investments
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing is ...
,
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
,
trading
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct excha ...
,
banking services and
risk management.
The services may originate from various independent service providers including at least one licensed bank or insurer. The interconnection is enabled through open
API
An application programming interface (API) is a way for two or more computer programs to communicate with each other. It is a type of software interface, offering a service to other pieces of software. A document or standard that describes how ...
s and
open banking
Open banking is a financial services term within financial technology. It refers to:
#The use of open APIs that enable third-party developers to build applications and services around the financial institution.
#Greater financial transparency ...
and supported by regulations such as the European
Payment Services Directive
The Revised Payment Services Directive (PSD2, Directive (EU) 2015/2366, which replaced the Payment Services Directive (PSD), Directive 2007/64/EC) is an EU Directive, administered by the European Commission (Directorate General Internal Market) t ...
.
Robo-advisers are a class of automated
financial adviser
A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory ...
that provide financial advice or
investment management
Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institut ...
online with moderate to minimal human intervention. They provide digital financial advice based on mathematical rules or algorithms, and thus can provide a low-cost alternative to a human advisers.
Global investment in financial technology increased more than 12,000% from $930 million in 2008 to $121.6 billion in 2020.
2019 saw a record high with the total global investment in financial technology being $215.3 billion, of which Q3 alone accounted for $144.7 billion in investment.
In H1 2021, Fintech deal volume hit 2,456 deals accounting for $98 billion in investment. Global VC investment was higher than $52 billion in H1’21, close to the annual record of $54 billion seen in 2018.
H1’21 saw $21 billion in corporate-affiliated VC investment. CVC deal volume reached a high of 284 in Q1’21, and then grew further to 312 in Q2’21.
The Americas
The Americas, which are sometimes collectively called America, are a landmass comprising the totality of North and South America. The Americas make up most of the land in Earth's Western Hemisphere and comprise the New World.
Along with th ...
saw about $51.4 billion of fintech investment in H1’21, with the US alone accounting for $42.1 billion. In the EMEA region, investment in fintech was very robust at $39.1 billion. In
Asia-Pacific
Asia-Pacific (APAC) is the part of the world near the western Pacific Ocean. The Asia-Pacific region varies in area depending on context, but it generally includes East Asia, Russian Far East, South Asia, Southeast Asia, Australia and Pacific Isla ...
, fintech investment grew between H2’20 and H1’21 — rising from $4.5 billion to $7.5 billion, although it was subdued in comparison with previous record highs.
The nascent financial technology industry in London has seen rapid growth over the last few years, according to the office of the
Mayor of London
The mayor of London is the chief executive of the Greater London Authority. The role was created in 2000 after the 1998 Greater London Authority referendum, Greater London devolution referendum in 1998, and was the first Directly elected may ...
. Forty percent of the
City of London
The City of London is a city, ceremonial county and local government district that contains the historic centre and constitutes, alongside Canary Wharf, the primary central business district (CBD) of London. It constituted most of London fr ...
's workforce is employed in financial and technology services.
As of April 2019, about 76,500 people form the
UK-wide FinTech workforce, and this number is projected to rise to 105,500 by 2030. Of the current fintech workforce in the UK, 42% of workers are from overseas.
In
Europe
Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a Continent#Subcontinents, subcontinent of Eurasia ...
, $1.5 billion was invested in financial technology companies in 2014, with London-based companies receiving $539 million, Amsterdam-based companies $306 million, and Stockholm-based companies receiving $266 million in investment. After London, Stockholm is the second highest funded city in Europe in the past 10 years. Europe's fintech deals reached a five-quarter high, rising from 37 in Q4 2015 to 47 in Q1 2016.
Lithuania
Lithuania (; lt, Lietuva ), officially the Republic of Lithuania ( lt, Lietuvos Respublika, links=no ), is a country in the Baltic region of Europe. It is one of three Baltic states and lies on the eastern shore of the Baltic Sea. Lithuania ...
is starting to become a northern European hub for financial technology companies since the news in 2016 about the
exit of Britain from the European Union. Lithuania has issued 51 fintech
license
A license (or licence) is an official permission or permit to do, use, or own something (as well as the document of that permission or permit).
A license is granted by a party (licensor) to another party (licensee) as an element of an agreeme ...
s since 2016, 32 of those in 2017.
Fintech companies in the United States raised $12.4 billion in 2018, a 43% increase over 2017 figures.
![Christine Lagarde at the Singapore Fintech Festival](https://upload.wikimedia.org/wikipedia/commons/e/e4/Christine_Lagarde_at_the_Singapore_Fintech_Festival.jpg)
In the
Asia Pacific
Asia-Pacific (APAC) is the part of the world near the western Pacific Ocean. The Asia-Pacific region varies in area depending on context, but it generally includes East Asia, Russian Far East, South Asia, Southeast Asia, Australia and Pacific Isla ...
region, the growth will see a new financial technology hub to be opened in
Sydney
Sydney ( ) is the capital city of the state of New South Wales, and the most populous city in both Australia and Oceania. Located on Australia's east coast, the metropolis surrounds Sydney Harbour and extends about towards the Blue Mountain ...
, in April 2015.
According to
KPMG
KPMG International Limited (or simply KPMG) is a multinational professional services network, and one of the Big Four accounting organizations.
Headquartered in Amstelveen, Netherlands, although incorporated in London, England, KPMG is a net ...
, Sydney's
financial services
Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...
sector in 2017 creates 9 per cent of national GDP and is bigger than the
financial services
Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...
sector in either Hong Kong or Singapore. A financial technology innovation lab was launched in Hong Kong in 2015.
In 2015, the
Monetary Authority of Singapore
The Monetary Authority of Singapore (MAS) is the central bank and financial regulatory authority of Singapore. It administers the various statutes pertaining to money, banking, insurance, securities and the financial sector in general, as well ...
launched an initiative named Fintech and Information Group to draw in start-ups from around the world. It pledged to spend $225 million in the fintech sector over the next five years.
While Singapore has been one of the central Fintech hubs in Asia, start ups in the sector from
Vietnam
Vietnam or Viet Nam ( vi, Việt Nam, ), officially the Socialist Republic of Vietnam,., group="n" is a country in Southeast Asia, at the eastern edge of mainland Southeast Asia, with an area of and population of 96 million, making i ...
and
Indonesia
Indonesia, officially the Republic of Indonesia, is a country in Southeast Asia and Oceania between the Indian and Pacific oceans. It consists of over 17,000 islands, including Sumatra, Java, Sulawesi, and parts of Borneo and New Guine ...
have been attracting more
venture capital
Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which ha ...
investments in recent years. Since 2014, Southeast Asian Fintech companies have increased VC funding from $35 million to $679 million in 2018 and $1.14 billion in 2019.
Africa's overall FinTech sector has expanded quickly. There were more over 1000 active businesses as of April 2022, up from 450 in 2020. The
venture capital sector, which saw deal value rise from $485 million in 2020 to $3.23 billion in 2021, was mostly responsible for the increase in investment in Africa. About half of this investment was made in FinTech.
Technologies
Fintech companies use a variety of technologies, including
artificial intelligence
Artificial intelligence (AI) is intelligence—perceiving, synthesizing, and inferring information—demonstrated by machines, as opposed to intelligence displayed by animals and humans. Example tasks in which this is done include speech re ...
(AI),
big data
Though used sometimes loosely partly because of a lack of formal definition, the interpretation that seems to best describe Big data is the one associated with large body of information that we could not comprehend when used only in smaller am ...
,
robotic process automation
Robotic process automation (RPA) is a form of business process automation technology based on metaphorical software robots (bots) or on artificial intelligence (AI)/digital workers. It is sometimes referred to as ''software robotics'' (not to be ...
(RPA), and
blockchain.
AI algorithms can provide insight on customer spending habits, allowing financial institutions to better understand their clients.
Chatbot
A chatbot or chatterbot is a Software agent, software application used to conduct an on-line chat conversation via text or Speech synthesis, text-to-speech, in lieu of providing direct contact with a live human agent. Designed to convincingly si ...
s are another AI-driven tool that banks are starting to use to help with customer service.
Big data can predict client investments and market changes in order to create new strategies and portfolios, analyze customer spending habits, improve fraud detection, and create marketing strategies.
Robotic Process Automation
Robotic process automation (RPA) is a form of business process automation technology based on metaphorical software robots (bots) or on artificial intelligence (AI)/digital workers. It is sometimes referred to as ''software robotics'' (not to be ...
is an artificial intelligence technology that focuses on automating specific repetitive tasks. RPA helps to process financial information such as accounts payable and receivable more efficiently than the manual process and often more accurately.
Blockchain is an emerging technology in finance which has driven significant investment from many companies. The decentralized nature of blockchain can eliminate the need for a third party to execute transactions.
Awards and recognition
Financial magazine ''
Forbes
''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing topics. ''Forbes'' also re ...
'' created a list of the leading disruptors in financial technology for its Forbes 2021 global Fintech 50. In Europe there is a list called the FinTech 50, which aims to recognise the most innovative companies in fintech.
A report published in February 2016 by
EY commissioned by the
UK Treasury
His Majesty's Treasury (HM Treasury), occasionally referred to as the Exchequer, or more informally the Treasury, is a department of His Majesty's Government responsible for developing and executing the government's public finance policy and ec ...
compared seven leading fintech hubs: the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
,
California
California is a U.S. state, state in the Western United States, located along the West Coast of the United States, Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the List of states and territori ...
,
New York City
New York, often called New York City or NYC, is the List of United States cities by population, most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the L ...
,
Singapore
Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, borde ...
,
Germany
Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
,
Australia
Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...
and
Hong Kong
Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China ( abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delt ...
. It ranked California first for 'talent' and 'capital', the United Kingdom first for 'government policy' and New York City first for 'demand'.
For the past few years,
PwC
PricewaterhouseCoopers is an international professional services brand of firms, operating as partnerships under the PwC brand. It is the second-largest professional services network in the world and is considered one of the Big Four accounting ...
has posted a report called the "Global Fintech Report". The 2019 report covers many topics of the financial technology sector, describing the landscape of the "Fintech" industry, and some of the emerging technologies in the sector. And it provides strategies for financial institutions on how to incorporate more "fintech" technologies into their business.
Outlook
Finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...
is seen as one of the industries most vulnerable to disruption by software because financial services, much like publishing, are made of information rather than concrete goods. In particular
blockchains have the potential to reduce the cost of transacting in a
financial system
A financial system is a system that allows the exchange of funds between financial market participants such as lenders, investors, and borrowers. Financial systems operate at national and global levels. Financial institutions consist of complex, ...
.
While finance has been shielded by regulation until now, and weathered the
dot-com boom
The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet.
Between 1995 and its peak in March 2000, the Nasdaq Compos ...
without major upheaval, a new wave of startups is increasingly "disaggregating" global banks. However, aggressive enforcement of the
Bank Secrecy Act
The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laun ...
and money transmission regulations represents an ongoing threat to fintech companies. In response, the
International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
(IMF) and the
World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...
jointly presented
Bali Fintech Agenda
Bali () is a province of Indonesia and the westernmost of the Lesser Sunda Islands. East of Java and west of Lombok, the province includes the island of Bali and a few smaller neighbouring islands, notably Nusa Penida, Nusa Lembongan, and Nus ...
on October 11, 2018 which consists of 12 policy elements acting as a guidelines for various governments and central banking institutions to adopt and deploy "rapid advances in financial technology".
The New York Venture Capital Association (NYVCA) hosts annual summits to educate those interested in learning more about fintech. In 2018 alone, fintech was responsible for over 1,700 deals worth over 40 billion dollars. In 2021, one in every five dollars invested by venture capital has gone into fintech.
Challenges and solutions
In addition to established competitors, fintech companies often face doubts from financial regulators like issuing banks and the Federal Government. In July 2018, the Trump Administration issued a policy statement that allowed FinTech companies to apply for special purpose national bank charters from the federal
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all nation ...
.
Federal preemption
In the law of the United States, federal preemption is the invalidation of a U.S. state law that conflicts with federal law.
Constitutional basis
According to the Supremacy Clause (Article VI, clause 2) of the United States Constitution,
This ...
applies to state law regarding federally chartered banks.
Data security
Data security means protecting digital data, such as those in a database, from destructive forces and from the unwanted actions of unauthorized users, such as a cyberattack or a data breach.
Technologies
Disk encryption
Disk encryption refe ...
is another issue regulators are concerned about because of the threat of
hacking as well as the need to protect sensitive consumer and corporate financial data. Leading global fintech companies are proactively turning to cloud technology to meet increasingly stringent compliance regulations.
The
Federal Trade Commission
The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction ov ...
provides free resources for corporations of all sizes to meet their legal obligations of protecting sensitive data. Several private initiatives suggest that multiple layers of defense can help isolate and secure financial data.
In the
European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...
, fintech companies must adhere to data protection laws, such as
GDPR
The General Data Protection Regulation (GDPR) is a European Union regulation on data protection and privacy in the EU and the European Economic Area (EEA). The GDPR is an important component of EU privacy law and of human rights law, in parti ...
. Companies need to proactively protect users and companies data or face fines of 20 million euros, or in the case of an undertaking, up to 4% of their total global turnover. In addition to GDPR, European financial institutions including fintech firms have to update their regulatory affairs departments with the Payment Services Directive (PSD2), meaning they must organise their revenue structure around a central goal of privacy.
Any
data breach, no matter how small, can result in direct liability to a company (see the
Gramm–Leach–Bliley Act
The Gramm–Leach–Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, () is an act of the 106th United States Congress (1999–2001). It repealed part of the Glass–Steagall Act of 1933, removing barriers in ...
) and ruin a fintech company's reputation.
The online financial sector is also an increasing target of
distributed denial of service
In computing, a denial-of-service attack (DoS attack) is a cyber-attack in which the perpetrator seeks to make a machine or network resource unavailable to its intended users by temporarily or indefinitely disrupting services of a host conne ...
extortion attacks. This security challenge is also faced by historical bank companies since they do offer Internet-connected customer services.
Many FinTech technologies have very high start-up costs but very low marginal costs for adding additional customers, effectively necessitating many FinTechs to act as natural monopolies.
See also
*
Artificial intelligence in finance
*
Smart contract
References and notes
Further reading
*
* Johannes Treu: The Fintech Sensation – What is it about?, in: Journal of International Business and Management, Volume 5, Issue 01, 2022.https://rpajournals.com/wp-content/uploads/2022/01/JIBM-2021-11-2094.pdf
External links
*
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Financial services
Technology in society