In 1967 Barclays Bank opened its first Automatic Tilling Machine. This event marked the beginning of a new era of digitalisation in the financial sector. Since then, banks, lending institutions, investment groups, factoring companies and individual investors have increasingly looked to digital solutions to conduct financial transactions. This led to the creation of the portmanteau word ‘fintech’ which combines together the two words ‘financial’ and ‘technology’.
Things have moved on considerably since the first ATM machine. Everyday life in the 21st Century provides us with many examples of successful fintech. Perhaps most notably people can now do their banking on their smartphone. This is a good example of how fintech has changed the financial sector. Since mobile banking we have witnessed a steady decline in the demand for physical banks. If you want to pay in a cheque, you can use an app to photograph the cheque and send it to your bank for deposit. If you want to pay for an item online you don’t even need to access your bank account, you can use PayPal. If you want to buy shares you no longer need a stock broker on a commission or retainer; instead, you can use eToro. You can easily buy Bitcoin and other cryptocurrencies on digital platforms either centrally controlled (Binance and Coinbase) or decentralised (Uniswap and PancakeSwap). The impact of fintech in our everyday lives is undeniable.
From African farmers getting small loans using banking services through their mobile phone to Europeans booking plane tickets and hotels online, fintech has provided companies and consumers with easy-to-use, customisable, scalable and secure solutions that don’t require visiting a bank or a travel agent, and don’t even need a telephone landline.
The Challenge for Fintech
The biggest challenge for Fintech has always been criminality. From the introduction of that first ATM in 1967 the goal has been to stop criminals taking advantage of technology that is intended to empower businesses and consumers.
There is the threat of hacking. An individual with the right combination of technical skills and criminal connections can learn how to break into corporate computers and individual online accounts. They can hold you to ransom or just simply drain your account of funds. They could alternatively be politically motivated and seek to disrupt. State players (such as secret services) as well as maverick anarchists seek backdoor entry to the huge data found on servers running fintech products.
And then there is the security threat posed by criminal gangs looking to launder money. Fintech has responded by digitalising the checks used in banking that require evidence of ID and address to open an account. This has been dubbed KYC or Know Your Customer.
Since Satoshi Nakomoto proposed a new system of digital cash in 2008 using a blockchain database that was free of central control and incorruptible there has been a lot of media speculation and misinformation about blockchain technology. It is a system where a ledger of transactions is created where each transaction is secured by the last. The ledger is held by computers and servers across the world and is protected by cryptographic technology that prevents hacking.
The most prominent use of blockchain technology has been to create a rival to fiat currencies first in Bitcoin and then in numerous Altcoins. Unfortunately, the nascent period of cryptocurrencies has been marred by hacks to exchange platform websites, bad faith actors like Sam Bankman-Fried and large account holders (‘whales’) generating volatility in markets to make vast sums of money in a matter of hours.
However, blockchain technology as a way of creating an immutable and secure database is in many ways the best solution so far to the fintech challenge of stopping crime. While the mainstream media delight in mocking young people for wanting to see a change in the system of money and being duped, fintech program developers are busy exploring ways of using blockchain technology to close the door to criminals and hackers.
Fintech is one of the greatest technological achievements of the 20th and 21st Centuries. We have gone from gold as a medium of exchange to paper money to digital money and the challenge has always been to come up with technological solutions to deal with this evolution in money. Fintech has been vital technology ever since banks started using computers and ATM machines. It has allowed new financial services to emerge that have empowered people and economies. Since this technology is underpinned by the internet the challenge for fintech has been to develop security systems to stop fraudsters and hackers.