Intuitive Guide To FinTech – If you have heard about term “FinTech”; most likely you don’t belongs to this world. In this post will talk about FinTech from beginner to advance level. And why is it important for all entrepreneurs to know about and understand?
Demystifying FinTech Jargons & History
AILabPage define FinTech as “Technology applied to automate, speed-up and secure financial system with its own standards chiefly used by financial institutions“. Financial institution here can be Banks, FinTechs or Mobile Financial Services providers.
‘FinTech’ is a term arguably coined in the mid 1980’s. If you look at the history it has relations since 1800 century. Between 1856-1966 finance and technology came together as a result first analogue financial technology was produced. There after first trans Atlantic cable. For the first two decades of use perception are FinTech was primarily employed to describe “Back-end” banking technologies. It was assumed as tightly linked & coupled to back office operations.
In early 2000 first digital bank was seen as almost all financial services institution participated in this game. Global financial crises of 2008 gave tremendous challenges to traditional method of Banking i.e only via bank thus independent FinTech startups got into picture. 2014 was the year of every day new FinTech startup. This is when we saw almost every big player especially from non financial services back ground jumped into FinTech market. All Payments and transactions went mobile.
Companies coming in FinTech domain are startups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software but more on Banking as a Platform(Baap) and Banking as a Service(BaaS).
Artificial Intelligence and Machine Learning in Finance, Regulation and Central Banking needs to be taken and adapted as basic need. Sadly till date most of machine learning algorithms today cannot offer reasoning. At the same time all of them predict assuming past will be repeated if all other factors in business environment will remain constant.
Financial Systems Transformation into FinTech Intelligence
Blockchain joined late in FinTech as a trusted digital friend and got permanent relationship here. It’s still early after rebirth of FinTech in 2014 to say how startups and non financial services institutions can leverage blockchain, AI as an part of FinTech solutions. This is to make sure their adoption does not come at the cost of societal growth. It might not a revolution at end but just an inflated balloon.
Looking at current growth and trends of FinTech, one need to admit its contribution to the global revolution. FinTech’s new joiners i.e blockchain and AI in the financial services industry will bring extensive transformation in coming years.
FinTech Ethics and Risks
It’s really important to talk, understand and underwrite the pros & cons of emerging technologies. It’s not impossible to track some ones every single penny movement and then use or sell that information for other use cases for benefits of others. There is no doubt FinTech can improve the lives of people around the world.
Risk of those same technologies can also be use to control people. It is proper and necessary to consider the implications and understand what comes along with introduction of these technologies like AI, ML, FinTech and Blockchain. Regulation is necessary to know & carry out so that these technologies & tool are utilised properly, regulated sufficiently, and their adoption does not come at the cost of societal growth.
Trends & Opportunities – FinTech
FinTech in this era is not what it used to be. FinTech is changing and it will bring too many changes in next 5 years that will shape the future of FinTech further. Banks since early 2017 got an indisputable interest towards blockchain & Artificial Intelligence technology. Those banks who adopted and making use now falls in challenger banks group based on their capabilities and digital offerings.
The biggest hurdle for any startup today is fund-raising so lot of FinTech came up with innovative idea and process to support the same. Biggest tweak or process bypass idea is ICO which is now used by start-ups to bypass the rigorous and regulated capital-raising processes.
How FinTech has Transformed Consumers
Outlook for FinTech benefits has trickled down to consumers through faster, more transparent and secure products & services. The future of FinTech services is bright and demanding. Siri is able to do financial transactions just on voice command. To use such development and business applications that use embedded AI and other emerging technologies has clear transformation agenda.
When banking started around 10,000 years technology was almost non-existent. But since then technology have embraced it self to keep pace with the ever-changing world. Technological advances continued and kept its challenge traditional banking on toes.
Automated teller machines (ATMs) launch in 1960’s was another break through for consumer experience transformation. ATM’s got evolved itself from just cash dispenser to fully banking service counter before reaching to its pinnacle and finally started disappearing after internet and mobile got introduced to consumers.
Mobile Banking and now mostly mobile app banking did full transformation of customer experience i.e transact any where, any time from any where.
Rise of Wallets and Lifestyle Apps
Mobile as primary communication or operating method is now is 10-year-old already. This advancement has helped customer to change their life style in a better way. FinTech is one the top gainer around this advancement and made indisputable change of thought process. Mobile now with financial app and other social media app functionality has become a must not a plus in the eyes of customers. Mobile channel also brought inclusion change in a big way.
Emerging Technologies For FinTech
A succession of FinTech as a new user-oriented services that combines finance, IT and consumers needs; led biggest disruption in recent times. Some of actors behind the scene acting as an enabler for creating innovation are as below
- Blockchain – Also known as “The Digitisation of Trust“. Rationale of blockchain in FinTech is to uncover the limitations and the opportunities. Blockchain also known as a core technology in FinTech of today.
- Distributed Ledger – A database that is consensual shared and synchronised across different institutions or geographies networks. This is done to make cyber attack more difficult. Blockchain is one type of distributed ledger.
- Hyper Ledger – A multi-project open source collaborative effort hosted by The Linux Foundation. This technology is an emerging platform with applications and enabled by blockchain. This is created to advance cross-industry blockchain technologies.
- Cryptocurrencies – The original design of blockchain was focused on the cryptocurrency “Bitcoin”.
- ICO – Lot of ICO’s pop up in recent times. Though blockchain is not bitcoin but its a underline technology. Biggest successful use case under FinTech with crypto is “Cross Border Remittances”
- Automating The Automation – AI got prominence after huge computing power made available in recent times. Almost every tech company got into AI and its sub technologies. Either claimed or actually started putting AI ability to their existing products; hence I call it as automating the automation.
- AI based Chatbots – Chatbots with AI got attention especially in banking industry. The first idea was to cut cost.
- Security & Compliance – AI & Blockchain made revolutionary change in FinTech in the area of info-security & compliance. Below are few examples where it has made greater impact.
- Identity security
- Threat hunting
- Security Intelligence
Case Study – WeChat
WeChat is a classic example of beautiful transformation from messaging application to profitable ecosystem. Its like a “Swiss army knife” application. This transformation is an excellent example of master flagship work peace in FinTech history. This has been a major source of disruption so far where blending of so many ideas working together as complement to each other.
There is no push service on WeChat with a subscription account. Users are allowed to send one message to followers every week. Followers will get an alert via a push service though. The key differentiators that have led WeChat’s dominance are highlighted as below. These features positioned the product as best in China and in top category in the world.
- Messaging : Instant messaging over mobile data network with group messaging like whats app
- Social media: Super intelligent blend of twitter, facebook and other social media platforms allow users to share stories, follow influencers and companies and share pictures/videos/links/etc. Also making audio and video calls over the internet
- Mobile payments: Mobile wallet or e-wallet payments for P2P, utility and merchant payment transactions.
- File Share: This is another biggest use case for any user especially among youth. This is for sharing music, files, documents, contacts etc.
- App Aggregations: “Mini Programs,” mini apps allow users to directly install & run applications smaller than 10 megabytes can run instantly on WeChat’s interface. With mini program push it aims at Apple and Google app stores. Excellent & Superb example of re-engineering work.
Despite all the positives it also has its own challenges and issues. Below are few issues and challenges WeChat faces as on date but off-course solution are at hand.
- Messy App: Too many features could eventually drag down the user experience because of the huge computing and memory hungry application.
- Saturation: Penetration of this app has reached to its pinnacle in China. The next growth has to be international. This has to grow out side the country China.
Books Referred & Other material referred
Points to Note:
All credits if any remains on the original contributor only. Our last post was on Convolutional Neural Networks. In the next post we will talk about Artificial Neural Networks in detail.
Feedback & Further Question
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Conclusion- This post was an attempt to explain FinTech from beginners to advance level at high level. FinTech brought mandate to digital savvy institutions to raise the service quality bar to attract and retain customers. We saw in this post that essentially, digitisation took banks from just being product providers to service offering. Digitisation kept on continuous contextualised services and helping customers to better understand their financial and commercial affairs. We most likely to see the future as a win-win with a relationship between FinTech as partner, the banking industry with new products, shareholders through higher returns on capital and to regulators through leaner, simpler and more efficient operations. Smart customers makes smart decisions.
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