Digital Banking 101
The Short History of Fintech
By Muhammad Ali Khan, Business Analyst at Aion Digital
Fintech refers to technology-enabled financial solutions. It can often be misconstrued as a kind of copy paste of a financial service into the digital world. However, this is not the case.
So, when did FinTech start? It seems to be a relatively new word that has surfaced at the tail end of this last decade. But fintech has been around for a long time in different phases. We can split the evolution of fintech into three phases of life since the late 19th century to now.
Fintech Phase 1 — Beginning for the 19th Century
Laying a Foundation (Yes there was FinTech in the 19th century)
Technology is defined as “an application of scientific knowledge for practical purposes”. By this definition, some people may be surprised to hear that fintech really started around the late 19th century, where promising finance innovators tried to advance how financial information is communicated beyond their local area. The link created between financial institutions and public transport changed the way banks were able to communicate with their customers and allowed expansion on a larger scale. The development of mainstream telephone and broadband communication allowed for new ways to send and receive money, with the first electronic fund transfer taking place in 1918. Global transport and communication systems were solidified by1950, creating a foundation by which the world could start building advanced financial institutions and products to change the way we interact with our money.
Fintech Phase 2 — the 60’s to mid 2000s
A Different Way to Store Information
Financial institutions from the 60s to mid 2000s were engaged in a structural shift to move from pen and paper to digital data systems. The most innovative and recognized fintech product was release by Barclays with the worlds first ATM, enabling customers access and deposit cash on the fly.
There were significant trends that took shape in the early 1970s, such as the establishment of NASDAQ, the world’s 1st digital stock exchange, which marked the beginning of how the financial markets operate today. In 1973, SWIFT (Society For Worldwide Interbank Financial Telecommunications) was established and is to this day the first and the most used communication protocol between financial institutions facilitating the large volume of cross border payments.
The 1980s saw the first mainframe computers which led to the introduction of online banking online banking in the 1990s with the rise of Internet and e-commerce. Online banking brought about a major shift in how people perceived money & their relationship with financial institutions.
By the beginning of the 21st century, banks’ internal processes, interactions with outsiders and retail customers had become fully digitized. This era ends with the Global Financial Crisis in 2008.
Fintech Phase 3 — The 2010’s
Rise of Startups
As the origins of the Global Financial Crisis that soon morphed into a general economic crisis become more widely understood, the general public developed a distrust of the traditional banking system. This and the fact that many financial professionals were out of work, led to a shift in mindset and paved a way to a new industry, Fintech 3.0. This era is marked by the emergence of new players alongside the already existing ones (such as banks).
The release of Bitcoin in 2009 is another event that has had a major impact on the financial world and was soon followed by the boom of different cryptocurrencies (which, in turn, was followed by the great crypto crash in 2018).
Another important factor that shaped the face of fintech is the mass-market penetration of smartphones that has enabled internet access for millions of people across the globe. Smartphone has also become the primary means by which people access the internet and use different financial services. 2011 saw the introduction of Google Wallet, followed by Apple Pay in 2014.
Almost a household name, fintech is becoming the face of the financial world, with startups becoming scaleups which are becoming large publicly traded companies (like paypal). Fintech is the Plan B that we never knew about, it’s the younger smarter CEO that doesn’t mind getting paid less because they are so passionate, its hope for customers that were once passive with their banking relationship, and now actively excited by the products and solutions being offered to them.
Big Techs are dominating the fintech space, giving anxiety to Banks, because customers trust these Big Techs now as much as they trust their Banks (maybe more).
AI, Open Banking, and Finance Management will pave the way for the next few decades. It will become increasingly important that fintech’s are not only customer centric but are emotionality engaging and provide services with purpose.