.707 Figure 1 Abc News Picture Courtesy The term itself is quite easy to understand. It is just a combination of “econom” and “technology.” While that is clear, knowing what people mean when they use the term “fintech” is not particularly useful. The definition of fintech in general is quite broad. Any technology used to provide a financial service is Fintech, strictly speaking. Though this involves some pretty boring stuff that were already happening when most of the people were born reading this. Nevertheless, when the term Fintech is used in modern language, the person who says it generally means new technologies that help to automate or enhance financial services otherwise. Especially those who are innovative, and look like they will make a fortune for anyone who invests in them. What is a Service to Finance?
.708 Let’s stop for a second and explore what are the financial services. This is significant, because the financial services industry is limited in general. Usually, in order to become a financial service provider, you have to register as one and adhere to the regulatory requirements which regulate financial services. Your bank is an offerer of financial services. A bank account is a privilege to finance. Drawing money at an Atm is also a financial service Online transfers and credit card payments loans and everything else that helps you handle your finances is all financial services.
What Digital Banking has done for us
By now the majority of people are either entirely or primarily digital banking users. You will hardly need to go to a bank branch physically either. Loans can often be rendered via mobile apps, and use algorithms to automate credit approvals. It took a lot of time and effort before the advent of those digital conveniences working with your money. Without going to a branch and doing an investigation, you couldn’t even know what your bank balance was. Digital Fintech’s embrace has made money-work faster and cheaper. It has opened up markets and improved global economies. So it’s no wonder that everyone in financial technology is willing to discover the next big thing.
Radical New Financial Technology
I’m sure you still haven’t clicked on this article with the expectation that you’d be told about your banking app or any of the other Fintech examples you use every day. Who would be delighted with that? Well at one point somebody was. Might I add rightly so. Yet Fintech is a hot topic about emerging technologies today. Which could completely change the way we think about it, and use money. Let’s look at some of the more notable cases. Cryptocurrency and the
.709 Cryptocurrencies are without doubt something you’ve heard about before. At the very least you’ve heard the name of the first legitimate cryptocurrency, “Bitcoin.” Its core technology is the “blockchain,” a decentralized distributed ledger that is open and immutable. Solving the confidence problems inherent in decentralized systems. Cryptocurrency was invented with the idea of being able to decentralize money for ourselves. It is based on strong cryptographic principles ensuring that nobody owns this. There is no-one in charge. That’s the complete opposite of how the whole central banking system that we all use operates. Most policymakers are quite worried about blockchain, understandably, but it is still Fintech. Maybe a Fintech kind of incredibly maverick but it counts!This is still an early part of the fintech umbrella but as time goes on I think the act of giving money to other individuals in small amounts will become pretty slick although it may remove the informal (and largely untaxed) economy.
Initial Coin Offerings
This is essentially a cryptocurrency offshoot which provides a way for businesses and developers to raise money rapidly outside traditional funding avenues. Icos have proven incredibly popular as a way out of the traditional methods of raising money. It is more than crowdfunding and is legally seen as a form of security in some countries. Which means some people fell foul of organisations like the Securities Exchange Commission. In fact, Icos has opened several new avenues for fraud and scams. The most infamous of these must be the “exit scam” which involves taking a lot of people’s money and then simply disappearing with it.
Crowdfunding
This is probably another one that most people have heard about but did not know came under the umbrella of Fintech. Crowdfunding is a funding model which makes use of the internet’s network effect. In the past you had to go to an investor or financial institution if you wanted one million dollars for something. Both of these companies are holding on to large sums of money from other individuals. You then decide to spend the money on people who need it for different reasons. Whether they think the reason is bad or you do not believe you can pay back the money you are out of luck. Crowdfunding practically flips the script. Instead of having one million dollars directly from one large entity that represents everyone you get one dollar from one million individuals. This is supported by the crowdfunding platform such as Kickstarter but it’s up to you to convince the masses to part with their small amounts of cash. Crowdfunding has resulted in some pretty stunning goods and ventures that no traditional investors wanted to touch on. It creates a completely new connection between entrepreneurs and money. The way people do charity has changed, too. Some websites like GoFundMe help support stuff like medical bills. The networks are taking a small percentage of the total but this is still incredibly lucrative. Since it cuts out so many intermediaries, it only helps us, but it has also opened up room for violence.
.712 If you think of the stock market, it undoubtedly always includes pictures of people in suits crying in phones and trying frenziedly to find out what to sell and buy. However, the truth is so different from the perception of this old-school Wolf of Wall Street. For one thing, with an internet connection, you can trade stocks yourself from anywhere in the world but soon it might be odd to make any trading decisions on your own. Machine learning algorithms then work at lightning pace with each other. Such Ai trading algorithms are already producing millions of dollars per day. When they’re working properly. You can also lose money as easily as the real world never completely suits the real world. It’s also worth keeping in mind that the algorithms themselves have to adapt to other digital traders like themselves as the stock market gets automated. There is, of course, a human being behind any trade algorithm at the moment. So at the end of the day, the rivalry is about who can make smarter apps. It is a driver of fintech powers which can liberate you from watching the markets yourself. Instead the plan can be automatically executed. Robo-advisors
.713 If you’re sitting on a pile of money that you’d like to develop into an even bigger pile of money, your best bet is to make a profit. This usually means paying a licensed specialist investment manager if you can afford it to put your money in positions where it will make a profit. Robo-advisors change this allowing you to put money into a software-managed fund. Not only is this much cheaper but it also gives you complete and clear control over what’s happening to your money. In an ideal world the robo-advisor would apply sound theory to your money and good tracking. This way it will expand without a human fund manager’s costly (and possible dishonesty). .714 Figure 2 Crains New York Photo Courtesy The world of work is fundamentally changing. The traditional model of work-till-you-die is definitely out of date. UberUpwork and every other site in the gig economy allow people to earn money and get services dynamically. Without needing to have replicated facilities. This revolutionizes the economy by eliminating the gap between talent and industry and painting a picture of what all work of knowledge could one day look like. The sites themselves make a pretty penny from those transactions take fees that still work cheaper than a decentralized replicated network.
Investing in Fintech Grand fintech concepts make a lot of money for their investors. If something revolutionizes money itself that you return then the dividends can be enormous. The reality, however, is that the vast majority of tech innovations are going nowhere. It’s just that we remember the people who made it big as human beings. All the competitors who tried and failed, while forgetting. Of course, these blind optimisms are necessary to make things better for us all. That doesn’t mean you should be wasting your time and money to the cause. When you find an investment opportunity relevant to fintech it is very important not to let the hype affect your decision making. Never invest in anything that you don’t fully understand in fintech or otherwise. You need to learn why it’s innovative and how it gives investors interest.
Fintech and Emerging Cybercrimes
Criminals must adapt to the world’s new developments. In the past, robbing a bank involved getting a few friends with masks and guns and a revenge going for it. Financial crimes are being pulled off by people on their computers sipping coffee these days. Fintech sets these people new goals. We eventually need to go where the money is and the money becomes all-digital. As the ones and the zeroes it passes back. So we are seeing new scams based on the premise that a lot of fintech is fresh. That means it won’t be possible for excitable members of the public to say its a scam. It also means hackers have plenty of new targets for the juice. Since some of these fintech systems are new concepts they are still learning their best practices in security. So at the outset there is sure to be a particularly vulnerable time.
Fintech’s Future
Indeed, there is a very real possibility that the 4th Industrial Revolution will eventually lead to a post-money environment. When automation is practically automatic, and humans don’t have to work to produce things, the very fintech technology could now be used to distribute the dividends of automation. It’ll be pretty exciting to see how everything works out!