UNDERSTANDING FINANCIAL TECHNOLOGIES

Technology is constantly transforming the competitive landscape while also triggering behavioral and cultural adaptations for clients and service providers alike. 

According to Investopedia, Financial Technology (Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services. ​​​

At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones. Fintech, the word, is a combination of “financial and technology”. 

When fintech emerged in the 21st Century, the term was initially applied to the technology employed at the back-end systems of established financial institutions. ​

Since then, however, there has been a shift to more consumer-oriented services and therefore a more consumer-oriented definition. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management to name a few.

Fintech also includes the development and use of crypto-currencies. According to Forbes Advisor, the top ten as of January, 2022 are: 

  1. Bitcoin (BTC) Market cap: Over $882 billion
  2. Ethereum (ETH) Market cap: Over $447 billion
  3. Binance Coin (BNB) Market cap: Over $86 billion
  4. Tether (USDT) Market cap: Over $78 billion
  5. Solana (SOL) Market cap: Over $52 billion
  6. Cardano (ADA) Market cap: Over $44 billion
  7. U.S. Dollar Coin (USDC) Market cap: Over $42 billion
  8. XRP (XRP) Market cap: Over $39 billion
  9. Terra (LUNA) Market cap: Over $33 billion
  10. Polkadot (DOT) Market cap: Over $29 billion

Yet, while that segment of fintech may see the most headlines, the big money still lies in the traditional global banking industry and its multi-trillion-dollar market capitalization.

FinTech Vs TechFin

While we discuss the rise of FinTech, there is also talk about TechFin. what’s the difference? FinTech is basically financial institutions using technology to improve their processes while TechFin is technology institutions providing financial services examples are Alibaba, Alipay, Tencent, etc.

This takes us to the controversy as to whether fintech is new or has always been there?  I think it is a matter of perspective. Financial firms have been using technology to improve services as far back as the industry has been around, which is quite a few centuries.

Starting off with typewriters, there eventually came the Wang machine technology which was one of the very first word processor, there came the Telex machine which combined the technology of typewriter and the wire.

Telex was used up until early 2000 to confirm international transactions.

Before now, reliance was on the post office. It certainly will be difficult for the younger ones to appreciate or imagine the time lag in consummating transactions when the good old post office held sway. On its advent, the ATM was described as the most important financial innovation. 

Of a truth ATM was a landmark powerful innovation. For the first time, technology provided access to financial services even when the banks are not physically open for business. It was an amazing transformation that made big impact on consumers globally.

Computers started with the big mainframe computer which used up the space of a huge room, yet it had less computing power than what we have currently in our mobile phones.

How does this Technology Impact the Global World? 

The impact of technological innovations has been multidimensional. One of the important impacts was how technology made things more efficient.

The most spectacular impact of technology is perhaps that technology changed how fast transactions are processed. today, we have systems like high frequency Algo trading, where the speed is incomparable.  In seconds, we do things that would previously have taken a year to do. 

The volume of transactions that we can handle, and the speed at which they are processed exceeds everything the world has ever seen. 

Information overload is another significant aspect. A few years back, we struggled to find information. Today, scholars can google anything and everything. Now we have access to way too much information.

The challenge now is to decipher which information is relevant, which information can be trusted, and what to do with the information. 

While the application of technology to finance and financial services may not be new, the rise of start-up FinTech companies has the potential to transform or reinvent global financial services in both developed and developing markets.

Digital disruption by FinTech companies is already having cross-cutting effects in a wide variety of financial services, including digital banking, consumer and small business financing, payments, insurance and pension provision, and investment management.

Blockchain and Distributed ledger technologies have applications that go beyond virtual currencies and are innovating settlement, money transfers and legal transfer of rights in general.

What is the Flip Side?

 FinTech innovations pose specific challenges regarding privacy, cyber security and operational risk.

New technologies potentially increase digital security vulnerabilities that could undermine financial, consumer and business customer confidence and trust, and undermine cyber resilience with systemic implications.

Privacy concerns may be especially relevant when big data analysis is used to evaluate creditworthiness of borrowers or for targeted product.

Advice, and cloud applications more generally, are prone to outside intrusion. Such vulnerabilities also exist for blockchain technologies, even though they are supposed to have a higher level of security and resilience.

Creating and, after negative incidents, restoring trust can be crucial for certain innovations to survive.

This could be supported by providing appropriately regulated fall-back solutions with human intervention and judgement along with automated services.

In the same vein, problems of financial exclusion of less tech-savvy financial consumers need to be addressed. Likewise, contingency plans for poorer or otherwise disadvantaged consumers that may fall through “algorithmic cracks” of lending and insurance services, or are otherwise excluded from the benefits of FinTech services, may need to be considered. {credit- Flore-Anne Messy is head of the Financial Affairs Division, OECD, and executive secretary of the OECD International Network on Financial Education

(INFE)}.

In any event we in developing countries and supposedly conservative professions need to brace up for it. The revolution is on and likely endless.

Technology is constantly transforming the competitive landscape while also triggering behavioral and cultural adaptations for clients and service providers alike. 

Anthony Ezenwoko.

2 thoughts on “UNDERSTANDING FINANCIAL TECHNOLOGIES

  1. The impact of technology in this era on the finanancial sub-sector and related fields is amazing. And the contribution of tech companies like Fintech cannot be overemphasised.

    As Fintech seeks to improve and automate the delivery and use of financial services in other fields, efforts should not be spared by including legal business to its dragnet.
    For a lot of money is involved in the law business, and the processes and procedures that produce the money involved, starting from client’s consultation, the lawyer, the court and everything in between remains largely manual and analogue.

    A touch of tech solutions will fine tune alot of things and chisel out avoidable cost, expenses and waste of man hour.

  2. Pingback: LAWTECH AND THE LAW - THE FUTURE HAS ARRIVED! » Anthony Ezenwoko's Blog

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