Finc3350 - the Evolution of Fintech

Brian Law

FINC 3350

Professor Lin

3/29/18

The Evolution of FinTech

The term ‘FinTech’, which is a short form of ‘Financial technology’, refers to the computer-based programs and other technology that influence or facilitate financial services. With improvements in technology, these advances in finance, such as banking through technology have been made possible. The term ‘FinTech’, which was originally used in the 1990s, has developed widely through the world. Its significance has been invaluable throughout the years and will continue to evolve.

In most cases, FinTech is often addressed as a merging of financial systems with information technology (IT) (Arner, Barberis, & Buckley, 2015, p. 4). The global financial crisis is among the reasons why FinTech is a progressing pattern. The development, according to the authors, has caused challenges to regulators and the market with reference to the equilibrium between the gains and threats related to it. Inventions, such as the telegraph in 1838 and successful placing of the transatlantic cable in 1866, also impacted greatly in the development of the FinTech concept as they allowed a path for the world’s introduction to financial globalization (Arner, Barberis, & Buckley, 2015, p.5). The incorporation of the Automatic Teller Machines (ATM) in 1967, further marked the beginning of the change in the present day’s FinTech.

In addition, the monetary services trade has been among the major buyers of information technology around the world, spending a total of US$ 197 billion in 2014 (Arner, Barberis, & Buckley, 2015, p.6). According to Arner, Barberis and Buckley (2015), from the 1980s, finance has been founded on the conveying and influence of digital information. Currently, the ATM is a great option for customers, where economics changes from a purely digital perspective to a physical product.

Furthermore, FinTech is unlimited to all parties, covering the different goods and services provided by financial service companies. Although there is a historical viewpoint behind the limitless of FinTech, it does not completely clarify the increased activity and rise in the policymakers. The current worry by policymakers is from those applying the technology in the finance industry (Arner, Barberis, & Buckley, 2015, p.7). In this case, one would have to understand the eras of FinTech development.

FinTech 1.0 involved the move from the analogue point of view to a more digital one. For the longest period, finance has often been related to technological advancements. The financial sector has, in many cases, provided the necessary resources required in building the technologies altogether. Finance was also involved in supporting trade by financing services, such as insurance and infrastructure, as well as supporting the production of goods necessary for trade to occur. Likewise, for many historians, it is believed that Europe’s financial revolution involving insurance and bank companies impacted greatly in the 1600s Industrial Revolution (Arner, Barberis & Buckley, 2015, p.8).

With regards to FinTech 2.0, it mainly involved the period of development of traditional digital financial services. This period began with the launch of the calculator and ATM in 1967 and went on to 1987. Throughout this period, fiscal service evolved from an “analogue to a digital industry (Arner, Barberis & Buckley, 2015, p.8)”. It also comprised confirmation of risks that resulted from escalating global monetary interlinking through a new arrangement of payment technology. Throughout this period, companies adopted the use of IT in their interior functions by substituting their “paper-based mechanism (Arner, Barberis & Buckley, 2015, p.11)”. Nonetheless, it was the introduction of the internet that encouraged the concept of FinTech and its development. For instance, by 2001, eight banks in the US had over one million online members.

The era of FinTech 3.0 from 2008 to the present day entailed a shift in the thought of consumers who possessed the resources and their authenticity to provide financial services. As the source of the financial crisis became more known, the civic community’s idea of banks became weakened. Moreover, while the financial crisis developed into an economic one, the loss of jobs escalated the public’s distrust in the banking system. This paved the way for the development of person-to-person (P2P) lending policy and other credit lending innovations, which were increasingly welcomed by most people (Arner, Barberis & Buckley, 2015, p.18). Politically, the Jumpstart Our Business Startups (JOBS) Act of 2012 in the US also promoted the creation of alternative platforms for funding businesses. Most people also preferred these means as they were less costly with fewer rates than what the banks provided. Although the JOBS Act was not aimed at encouraging FinTech 3.0, it coincided with increased pressure that limited banks pioneering ability and the public’s ruined view of banks.