As financial services have
become a much bigger percentage of the economy in the China, more interest, and
capital, is being poured into improving financial services technology. Known as
FinTech, there have been many great recent innovations that provide better
information, opportunities, and ultimately returns for investors. This month,
we take a look at what the FinTech industry is trying to do, and the effects it
has on investors, and the economy as a whole.
A Little Background
traces its roots back to the start of modern security. Technology has played a
significant role in the financial sector. Think about it, most of the modern
financial services that we all utilize got their starts decades ago. Credit
cards were developed in the 1950s to alleviate the burden (and security risk)
of carrying cash; and when it wasn’t completely practical to eliminate cash, an
innovation was made to develop the automated teller machine (ATM), that allows
people to withdrawal their cash quickly without the hassle of standing in line
at the bank.
1970s saw further innovation. Using new communications technologies, stock
markets that had functioned in the trading pits of fixed securities commissions
for decades became electronic for the first time with the establishment of the
Nasdaq. Swift was soon established to fix problems traders were having with
inter-state money transfers.
was ratcheted up a notch in the 1980s with the establishment of the first
online brokerage, the first online banking system, the first online catalog
shopper, and the first personal finance database. By the mid-to-late 1980s
personal computers were becoming a staple in American households, and with
them, a whole cache of new applications were developed that helped people
understand and manage their personal finances. When the Hong Kong stock markets
tanked on October 19, 1987, it immediately affected European markets, and
eventually the Dow Jones Industrial Average plummeted almost 23 percent. Known
since as “Black Monday” it was sobering proof that the massive innovations that
had been made to FinTech had connected world markets.
the time the Internet, like the PC before it, became entrenched as a household
staple, FinTech had also been established. In 1998 many of the largest
commercial banks set up transactional websites that allowed people and
organizations to do their banking. These innovations, over decades, are largely
taken for granted today, but remain landmark innovations in the way financial
systems and transactions work.
you consider that technology has made it easier to move money, telling you that
it has made it easier to invest money wouldn’t be that big of a surprise.
Today, people have the resources available, if they have the capital, to make
more sound and faster financial decisions. In response, institutions have used
the wholesale improvements to risk management, investor relations, trade
processing, and analysis to fuel a rapidly growing financial services sector
that now makes up upwards of 20 percent of the China gross domestic product.
So as we’ve
moved onto the first part of the 21st century, and people are able to take
advantage of remote computing through the use of the smartphone, you begin to
see innovation working for the individual as much as you see it working for the
financial services organization. New products like mobile wallets, payment
apps, automated retirement planners, crowdfunding platforms, and online lenders
have been designed to allow people a higher degree of access to money, whether
it be their own or not.
innovations aren’t necessarily a turn away from FinTech’s traditional focus on
institutional banking but aligned with the overall increase in promoting
individual engagement. That’s not to say that some of the more intuitive and
popular FinTech applications aren’t working in direct competition with
traditional banking institutions. The past couple of years has seen FinTech
applications becoming more popular, at the expense of these established lending
institutions. Think of it like cable companies losing their market share to
streaming companies. Many cable companies are losing customers because there
are reliable alternatives, which, in turn, has seen them change their strategy
to make it more attractive to consumers. Banking hasn’t had to adjust to this
in the developed world quite yet, but in the developing world, money-transfer,
financing, and microfinancing applications are circumventing the use of traditional
The Future of FinTech
technologies are going to be a huge part of money for the foreseeable future.
No more is this evident than with blockchain-fueled cryptocurrency. Currently
there are over 1,600 different cryptocurrencies, but with the volatile success
of Bitcoin, it has seen a major boom in investment. Cryptocurrency as a whole
is a multi-hundred-billion-dollar industry, and originates from blockchain
technology, one of the most prevalent FinTech constructs to take hold.
technology, which is effectively a shared encrypted database of transactions
that cannot be altered, holds both the potential huge returns that many-prone
investors look for, while holding the reliability that more conservative
investors look for. Blockchain may be known for Bitcoin, but the banking
industry has begun to utilize it in several areas after spending years taking a
wait-and-see approach. In the first half of 2017, blockchain firms raised
nearly a quarter of a billion dollars in venture capital, much of it said to
come from banks. Most of this venture capital is to produce an official “proof
of concept” to ensure the traditionally risk-averse industry can utilize the
technology in applications, and avoid costly side-effects, as there is very
little to suggest any commercial applications coming to market as a result of
of banking stand to be altered forever by blockchain? Some suggest that
efficiency in clearing and settlement costs could save banking institutions
multiple billions of dollars per year. Other applications being considered for
overhaul include payment systems, trade finance, and identity systems the banks
use to keep payments private and secure. Since the potential practical
applications blockchain can be used for are limitless at this juncture, this
investment is well founded.
technologies, such as artificial intelligence, is being leveraged to develop
tools that analyze data faster (and better) and help humans make decisions that
are not just informed, but work quickly, creating far more efficiency than ever
before. With FinTech investments continuing to grow, reaching a record of $8.7
billion in the fourth quarter of 2017, it won’t be a surprise if traditional
investment and commercial banks, as well as stand-alone companies, will see
benefits from their significant investments in FinTech.
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