By definition, financial technology, or FinTech, is a term that describes the use of technology to deliver financial services to the public. There is a common misconception that FinTech is a revolution of the last decade and that this sector is approaching its tenth birthday of delivering innovation. However, in reality, the services and output of FinTech companies have existed much longer than this; it’s the shiny new titling that has created this decade-long façade.
Think EFTPOS, the introduction of ATMs, and the launch of PayPal – all financial technologies by definition that actually date back to the 80s and 90s, even as far back as 1969 when ATMs were introduced. So, why do we only think of FinTech as being a product of the current millennium? This buzzword has taken off as a result of the incredible progression of technological advancements (not just financial) that affect our day-to-day lives as of late. Think of all the innovations in the last 10 – 20 years compared to the previous 200 – the difference is enormous. It’s this cascading introduction of impressive new advancements that have impelled society to neatly label each; the popular terms blockchain, AI and machine learning being other examples of this.
FinTech is one of these neat labels, and what we have seen with the rise of FinTech is not necessarily a revolution, but rather a continual evolution that has spanned across many decades. It’s just that the evolution is just happening at a faster rate than before, which is why it’s caught more of our attention.
Delivering Not Disrupting
The intention of FinTech companies is not necessarily to disrupt, but rather to deliver an unmet need and to fill a void. FinTech businesses don’t come to life to recreate an industry, or even to invent one; they are created to solve a problem with the incumbent value chains of larger institutions, namely the banks. You don’t see mature full-service FinTech banks launching under the shingle of one supplier, or even the desire to do so.
I know this because I founded a FinTech. After working in the financial services industry for over 20 years, I became fed up with the high fees associated with the value chain of fund managers, administration platforms, and financial planners, and I saw a void in the market for cheaper brokerage services. In my opinion, there was a problem with the traditional brokerage model – being high fees and the obligation for using investment advisers.
We had already moved from stockbroking 1.0 – the traditional stockbroking house to embracing stockbroking 2.0 in the 90s – the advent of online trading in the 90s. But, I believed it was time to enter the era of stockbroking 3.0. Stockbroking 3.0 is the coming of age of cloud computing and housing trading systems in sites such as Amazon Web Services (AWS). This enables significant instant scalability, removes the need for expensive and increasingly old legacy in-house architecture, and removes the necessity for high staff numbers.
So, in response, my company SelfWealth created the opportunity for investors to trade with a flat-fee and to leverage the underrated knowledge of their peers. We are one of the first of the 3.0 stockbrokers to launch in Australia and the nation’s only flat-fee online trader – effectively helping take the industry through this next evolution.
Where To From Here?
The increasing emergence of more and more FinTech businesses around the world is obvious; technology is not slowing down and we don’t expect financial technology services to either. FinTechs will continue to reveal inherent issues with larger and traditional institutions and subsequently offer resolutions to what is uncovered.
And, as the introduction of new FinTechs continues to multiply, and as competition grows, major banks will continue to lose share. Further, the more FinTechs that emerge – the greater the spotlight becomes on what is missing, and the more nimble entrants become to fill these gaps – the more difficult it is for larger corporations to defend themselves.
At the end of the day, that is truly great news for consumers because no matter the industry, when a company is able to successfully fill a void, it creates a value-add.