Whether you are new to the financial markets, a start-up looking to overthrow the world’s top tier vendors with disruptive lightweight applications / collaborative solutions, or an esteemed, established participant on the buy or sell-side possibly bogged down by legacy systems or some new hybrid, you’ve probably heard the word fin-tech thrown around.
In a WordFin-tech as you may already know is an abbreviation for financial technology. In order for us to discuss fin-tech and what it represents in today’s world - perhaps it’s a good idea to briefly review what financial technology has meant over the years and what it may or may not morph into in the coming decade.
Fin-tech InvolvementComparing legacy solutions and systems with new fin-tech means that the benefits, risks and ROI surrounding the many different flavors of fin-tech being touted as balm for legacy system pains must be positioned in a sort of fin-tech matrix by the authors of the technology as well as by consultants, in-house business owners, implementation teams and developers. This is no easy task for large enterprise solutions.
Let’s review at a very high-level, how fin-tech, (probably not labeled as such until recently), has evolved over the past century. Couching our knowledge of fin-tech in such a way helps reveal some underlying themes that may not be apparent without this context and may afford one the ability to extrapolate possible future usage better.
Disclaimer - Take a look at this brief high-level bullet point. Readers may or may not agree with my assessment of the key “technologies” that are represented in each decade or the ad-hoc methodology that I’ve used towards inclusion here. However, if disagreements exist, I welcome them. This is a brief publication only and there will certainly be geographic developments, not to mention prior works of art and relationships between the technologies sighted that have been omitted.
This list is U.S. centric as well, mainly because the United States has been the birthplace of 161 of Britannica's 321 Greatest Inventions, many arguably related to finance and banking.
Preceding and during the first part of the last century there were revolutions in agriculture, rail, auto, mining, steel-making, electricity, petroleum, telephone, telegraph, and finally banking, regulation, with computerization attending the party later. Global central bank creation started around 100 years ago as well, setting up our list.
100 Years of Change Enabling Fin-tech
The PresentThe use of the hyphen to connect these words may arguably have occurred somewhere within the last 100 years, steadily progressing towards what we all know and accept as fin-tech today. What is clear is that fin-tech is here to stay and investment in newer uses of technology to transact value for value is steadily increasing.
Was the abacus one of the first fin-tech tools?
Since finance has been around for hundreds of centuries and technology to varying degrees has as well, although not called such, we can see from a bit of context how these two different sectors have merged into an innovative and disruptive force that continues to tear the very fabric of traditional and incumbent institution’s prior methods, and the market’s respective systems, that result in trillions of dollars in annual transactions; whether FOREX, Repo, or more traditional stock market cash and derivatives transactions.
Acronym usage abounds. For customer-to-customer (C2C), business-to-customer (B2C) and business-to-business (B2B), both banking and insurance sectors are feeling the pressure to adopt newer fin-tech solutions and embrace the changes that are in play. From Wiki we see the following themes presenting as areas under attack:
Bitcoin – Blockchain and RobosWelcome to the future. Maybe you’ve already heard of Bitcoin, investigated it, or even opened up a wallet. It’s been around since nearly 2008 and is built upon disparate prior art in financial and other technologies; database concepts, digital signature security, hash functions, distributed ledgers, proof of work and more. Now the banking and insurance sectors are stripping out what it sees as the most alluring component and speculating about how the distributed general ledger or some hybrid Smart Contract embedded in blockchain may be used to fuel efficiencies over the course of the next decade in the sector.
“Robos” are algorithms that automatically advise asset allocations in the wealth management area of banking. These too are attracting an enormous amount of investment by some very serious players like Blackrock and continue to be touted as a solution that every man, women and millennial with access to the Internet or a Smartphone app can use to self-direct their own finances.
It’s Your MoveSince the most recent black-swan near systemic collapse of our global financial systems in 2008, governments and regulators have added weighty rules, regulations, and compliance requirements that have forced many too-big-to-fail institutions, mid-tier banks and other market players to either disband, restructure, or divest of risky operations. This compliance burden has led to an allocation away from in-house authorship of new solutions. Fin-tech is stepping in to assist with the burden to comply and satiating the need for newer technologies.
Given the apparently fractured nature of FOBO systems at banks and fin-tech currently, the future will be quite interesting. Maybe smaller and smaller players will continue to impact and invent new and ingenious ways to remove the middle-man, broker, and disparate systems that run large institutions, forging interesting marriages between these players, one unable to scale and one already connected to global networks and collaborative partnerships with regulators, central banks and exchanges. The methodologies and protocols that underpin today’s markets may not even exist in ten years. They may be re-invented.
What is fin-tech? Fin-tech is a movement and a segment of the financial markets. It’s intellectual property, code, hardware and software. It’s a group of people and companies that offer benefits to retail and institutional banking and insurance clients. Fin-tech is a tool-set of solutions, pushing consortiums, joint ventures, strategic alliances, apps, APIs, and decentralized transactions upon us in a potentially commoditized and ubiquitous way at a speed that may overtake our most conservative estimates.
Frontrunning: February 11
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Other headlines from this morning at LeapRate:
Frontrunning: February 02