What is Fintech?
Fintech is the blend of two very popular terms “finance” and “technology” and it refers to such types of business that use technology to automate or enhance financial services and processes. The term entails an industry that is rapidly growing at an exponential rate that exists to serve the customer and business in numerous ways. As it appears it has an endless array of applications, from mobile banking and insurance to cryptocurrency and investment apps.
This industry is huge and will continually grow in the coming years. One of the primary reasons for the boom in the industry is that traditional banks and other major financial institutions are supporters and adopters of the technology, investing and partnering up with fintech startups to meet the demand of digitally-minded customers and to move forward, and remain relevant in the industry.
Impact of fintech on banking and financial sector
In front of our eyes, we are witnessing one of the biggest transformations in financial history “The Fintech revolution” and how it is changing banking as we know it, to such an extent that it on the other side of the river it would be only winner or losers that it may have a significant impact on financial center like Hongkong but those who will be the most affected by this revolution is those who work in the financial industry, the bankers of future will be very different from the bankers of today with very different personalities, background, and skillsets.
Financial technology is the innovative use of technology in the design and delivery of financial services and it is transforming the banking world as we know it from things like artificial intelligence, peer to peer lending, big data, blockchain, crowdfunding, digital payments, and Robo advisers just to name a few.
But why is this fintech revolution happening now? Historically as technology evolved, the banking industry was reasonably good at integrating those new technologies in order to better serve customers but all of that changed during the financial crisis of 2008, during the financial crisis banks were busy dealing with numerous new rules regulatory requirements, and fines imposed on them, punishments, many cases deserve and innovation became a very very distant priority.
Emergence of technology
Fusion of technology with banking and finance sector
Ali baba’ financial department has already launched a money market which has become the third biggest money market in the world which has become a reason for dislodging incumbents who have been doing this for years, that fund has a whopping hundred fifty million single investors who have invested on an average less than a thousand dollar. In China, Tencent messaging app has already become one of the most common tools to transfer money, already last year they have processed more than 8 billion red envelope transactions. This same app not only allows you to buy insurance products and directly invest from your smartphone but also lets you book an appointment with a doctor, order a taxi and donate to charity. The financial platform of the future will not be your regular traditional bank but a technology firm.
Many young people are going to first open their bank account not with an HSBC or JP Morgan but rather with a Facebook or Apple and these traditional banks obviously worried about these technology firms because they know that many of these tech firms have daily existing touchpoints with customers like yourselves and to a certain extent they already enjoy your trust and confidence in them and if you are already comfortable to share your close moment on such technology platform, would not you will like to transfer money using their platform if grown so much comfortable with this app that they have become a significant part of your daily schedule wouldn’t buy them as well to buy insurance products.
These fintech startups have already started getting on the nerves of the bank, they are worried because thousand of fintech firms are offering proper products that were offered previously in only traditional banks. Peer to peer lending platform now offers consumers attractive alternative loans which were only available in the main bank. Consumers’ asset management solutions that are not only more transparent in what they charge you but also substantially cheaper, are offered by Robo advisory platform. What worries most these banks is that these fintech firms facilitate its user with the ability to choose which type of banking services that they want to be involved in.
Fintech has brought new banking model
The fintech startup has no intention whatsoever to become a deposit-taking institution, they are happy with handling front end work and leaving blackened for the traditional bank like post rate settlement reconciliation and regulatory reporting and this is going to be a reason for the emergence of new banking model where commoditized utility work is handled by traditional banks and fintech startup faces work related to customer experience. The fintech revolution is bringing in other major positive development as well it will financially include 2 billion individuals who are still unbanked, have no access to banks, have no way to borrow money to start their business or for tuition fees which perpetuate a vicious cycle of poverty and this is not only the problem of only developing country but also developed country as well like United states where in cities like Miami and Detroit where more than 20% people are unbanked.
Fintech firms are able to serve them as well and are offering financial services as well and as per the report of the world bank over the course of the last five years over seven hundred million people went from unbanked to banked. Fintech firms are continuously working on changing financial services for a good and consumers like you and me will be a major beneficiary not only from a user point of view and convenience but also by its easy accessibility and cost-saving technologies.
Messaging apps are being tested to replace those call centers that you all probably hate, biometric data and voice recognition tools are being tested to replace passwords. In the future, you will not even need to worry about it, imagine your car insurance premiums automatically going down because your card knows that you have been driving with safety and robotically signals your insurer.
Others are experimenting to enhance systems in virtual reality as tools to develop products to offer financial services to millennials that would actually benefit them so obviously, the banks are worried about all this but the banks have realized that the landscape is changing and in order to survive they need to evolve. Some banks will survive this evaluation through innovation and entrepreneurship but most banks will fail to do so as Citibank has predicted the next 10 years 30% of banking jobs will disappear.
Some other experts put the number as high as 50 percent one banking job out of two will disappear over the next 10 years. well some of you may say hey it’s a good thing there’ll be fewer bankers in the world but this has very serious consequences on any financial center including Hong Kong that is at the crossroads of all this because it’s not only the direct job losses that 30% to 50% but also all the related economy around from law firms and accounting firms, hotel lines, etc. Due to the emergence of fintech new types of jobs will also be created but significantly in lower numbers which will demand entirely different types of skill sets.
Skillset of future generation bankers
The jobs which will be created in this industry will be for creative designers and programmers not for traders or compliance officers so what do we need to do? so many of us in the FinTech community are working not only with government’s to formulate new policies or regulators to enact reform but also the broader community in shaping this new ecosystem and ensuring that we can all adopt this new system but we need to bring in a fundamental change in the mindset of people that they would become comfortable in joining startups rather than taking stable jobs and banks.
The most important change is probably the way we train the next generation of talent. It would be unacceptable that we would let students graduate out of finance programs with no courses on FinTech but we need to go further in that yes we need to continue teaching core courses like economics, corporate finance, or strategy but we need to include in course of every business school coding, designing thinking and product development as the bankers of the future and those who will shape the future of this industry are not going to be your traditional bankers but rather designers programmers and creative thinkers.