For about a decade now, FinTech has been a ubiquitous concept. In fact, it is difficult for many of us to imagine the financial industry without its existence. (No Revolut? Impossible!) The reality, however, is that the FinTech industry is only around 12 years old. In human development terms, it is right on the cusp of being a teenager. A pre-teen, you might think.
This article will be focused on analysing the differences between the FinTech industry 2017 vs. 2020. The points will be derived from a panel discussion about FinTech Foundations during CFTE’s EdTech Day from last week. But first, let’s look at a quick refresher on the origins of FinTech.
The initial narrative of FinTech is that it is a phenomenon that came out of the global financial crisis in 2007. During this, there were three key technologies that facilitated this emergence: mobile phones, cloud computing and blockchain. When the crisis hit, traditional incumbents were not in the position to internalise these digital technologies, which gave rise to challengers that were nimble enough to adapt. This also created a regulatory window of opportunity for challenger companies, as regulators were:
- Too busy cleaning up after the crisis
- Willing to let the status quo in the financial industry be challenged
The question now is, how has the industry evolved?
At the beginning of this article, we stated that the FinTech industry is at its adolescent stage. This actually rings true—with the growth of the FinTech industry closely resembling that of a baby evolving in an adult individual. When the industry was at its nascent phase, FinTech had to be fed more than anything else. It is only recently that FinTech startups are capable of raising large amounts of capital and competing with incumbents. Undoubtedly, the ecosystem is more mature now.
What has changed?
Let’s look at this from a legal and regulatory perspective. How do you regulate an industry that is nascent? Regulators have limited resources and time. Hence, the perpetuation of the framework: “too small to care, too large to ignore and too big to fail.”
During its origins, regulators did not find enforcements to be necessary, as 99% of FinTech startups were still quite small then, with the sole 1% yet to become systematic. Fast forward to 2020, the startup game has morphed into the big tech playing field. With a single press release about Libra, Facebook has parachuted itself to being ‘too big to fail’ almost overnight. Impossible for regulators to ignore.
In 2017, the 4 main components of FinTech were perceived to be:
- Challenger banks
- P2P lending
- ICO and cryptocurrency
Now, however, this list is no longer relevant. Challenger banks should be exchanged for digital banking; P2P lending is waning and can be swapped for regulatory technology, as the leading concept in FinTech recently is the idea that compliance can be customer-centric and carried out in real-time. Lastly, cryptocurrency would be better replaced with digital currencies by banks. This is because cryptocurrencies’ original selling point was that they were likely to be a better hedge against regular currencies during times of crisis. However, during the stock market crash of COVID19, this was proven to be untrue.
Therefore, the new list of 4 main components of FinTech should look more like:
- Digital banking
- Regulation technology
- Digital currency
You will notice that the only component left unchanged is ‘payments’. This is because, in 2020 amidst the health crisis that we are currently facing, digitalised payments are in-demand more than ever.
For example, after the outbreak of COVID19 and implementation of social distancing measures, many vendors have announced that they are currently unable to accept paper invoices, with digital invoices taking precedence instead. Will this transition likely be reversed once COVID19 has receded? It seems highly unlikely that we will return back to the old normal, hence the coining of the phrase ‘the new normal’.
Let’s return to the topic of 2017 vs 2020. The largest thing that has happened since 2017 is the current pandemic that we are hitherto experiencing. In fact, it is of a larger magnitude than the financial crisis. During the financial recession of 2008, employment in the US rose by 5%. Now, in the short span of a few weeks, it has risen by 25%. While this crisis did not originate in the financial sector, it emerged from the labour market and equally has massive repercussions on the economy.
Further, with the need to move a significant amount of transactions online, it is likely that FinTech will find interesting opportunities to thrive during these unprecedented times. One of which potentially being the healthcare industry, seeing as how COVID19 has impacted our healthcare system the greatest. Perhaps 2020 and onwards will witness a rise in health tech offered in partnership with financial solutions. After-all, even with the virus, the world is not stopping. In fact, it is moving even faster, assisting a transition that was already underway.
Interested to learn more about FinTech and receive an industry recognised certificate? Check out CFTE’s FinTech and Digital Finance certificate, launched in partnership with Christopher Chazot, Former Group Head of Innovation at HSBC. Click here to find out more.