The next early fintech innovation was when US Federal Reserve banks designed a system for moving funds electronically. This system was first known as the Federal Reserve Cable Network and is now known as Fedwire, 4.Suddenly, FinTechs and banks are not facing other FinTechs and banks, but rather a company that controls an entire ecosystem and a digital lifestyle. This concept of “Death by a Thousand Cuts” was carried out in the media with FinTechs joining forces to launch crusades against banks, pressure the government for more support, and creating industry bodies to coordinate their approach. As Silcon Valley players emerge from the West and Chinese players emerge from the East, FinTechs and banks must work together to compete with the common enemy.
In what is arguably the first allusion to fintech and the future of financial services, economist John Maynard Keynes wrote about the link between finance and technology in his book The Economic Consequences of the Peace. On the one hand, fintech startups have received funding from banks and often rely on banking, insurance and back office partners to deliver their core products. Information technology, banks and Fintech companies are at the forefront of this development and all three are leading the pilgrimage. In other words, FinTech is not replacing banks or banking, but rather eliminating the friction of old banking through technology and reaching the parts of the world that banks could not reach through technology.
Fintech has revolutionized finance over the years, particularly in the consumer sphere, where access to financial services and payment methods has increased significantly. Fintech applications enhanced by AL and ML include credit scoring, fraud detection, regulatory compliance and wealth management. With the influx of new technologies and innovations, coupled with the rise of smartphones and the decline of the traditional banking system, fintech has grown tremendously over time. Banks still own the customer and receive a share, FinTechs get a huge addressable market and instant scale.
Every fintech era has been driven by the use of technology to make banks easier for their customers to use, and as this technology evolves, so do the ways in which individuals and businesses can manage their money. The way in which mobile phones have changed consumer behavior and the way people access the Internet is also the reason why the table above differentiates between developed and developing countries and talks about Fintech 3.5 when it comes to the latter.
