Financial technology has been visibly advancing in front of our eyes ever since banks made the move online. With an increasingly cashless society, applications and platforms have been made to assist us with a better understanding and management of our finances, while new banks have created new systems that offer us an easy and efficient experience.
How far back does fintech actually go? Has this sudden increase in banking technology emerged out of nowhere, or has it been a steadier development to get to where we are today? Before we dive into the history, we should initially talk about what fintech really is!
What is Fintech:
Fintech is the technology and innovation that means to compete with traditional financial methods in the delivery of financial services. It is an arising industry that utilises technology to further develop activities in the world of finance.
Let’s look at all the significant periods in the development of fintech, prior to investigating how it may advance later on in the future – also the ideas and systems that will drive this advancement.
History of Fintech:
Fintech can be split into various periods. Each one of these periods saw a particular level of differentiation in the market that prompted changes in the way consumers interacted with money. Let us explore these periods more closely:
1886 - 1967:
This is when the infrastructure of fintech was being built and will support financial services worldwide. The first transatlantic cable was released in 1886 and not long after, Fedwire enabled the first electronic fund transfer system in 1918 by using morse code and telegraphy. In today’s standards this is very basic, however back then the ability to make financial transactions over a substantial distance was unheard of.
1967 - 2008:
The beginning of this period is marked as the installation of the first ATM by Barclays in 1967 in Enfield, North London and is described as the change from analogue to digital finances. The 1970s saw the establishment of NASDAQ, the world’s first digital stock exchange and Society For Worldwide Interbank Financial Telecommunications, a communication protocol between financial institutions facilitating the large volume of payments.
This period proceeded through the 1980s with the rise of bank mainframe computers and the development of online banking through the 1980s saw the way people do business change, with the online revolution prompting a change in how people saw financial institutions.
The 1990s saw the main developments towards digital banking, with customers starting to manage their money in different ways. With this move to digital banking came companies such as PayPal, which would indicate towards new payment systems that would evolve as the world progressively went on the web.
Things were starting to look good, fintech was growing at an exponential rate and the worldwide economy was expanding. However, the global financial crisis of 2008 destroyed this period of fintech and incited the innovation that we see today…
2008 - Present:
Post-financial crisis, the lack of trust in banks aligned with new regulation opened up the market to new providers. Bitcoin is born in 2009 followed by other cryptocurrencies using blockchain technology. In the same period that technology was revolutionising the world, smartphones were being adopted as an essential tool for people access the internet and other financial services.
New advances have opened up to make it simpler and easier to create digital banking products using “Open Banking”, that permits third-party companies to access financial data. Banking as a Service (BaaS) platforms have made it simpler for banks and other financial institutions to move away from complicated systems that empower them to launch “Neo-banks” – which are digital banks based around customer experience.
With the world currently recovering from Covid-19, looking ahead, and predicting the future is extremely difficult. However, the current Global fintech investment reached a record $98bn in the first half of 2021, up from $87.1bn in the same period in 2020 [KPMG] – Fintech is increasing connectivity and technology penetration is revolutionising the way people handle money.
Covid-19 was a test for all worldwide organisations to comprehend their readiness for an enormous disruptive occurrence. The fintech industry was one of the most forward thinking and understood the significance of technology and digitisation.