The Evolution of FinTech — 5 acts that are creating a Big Bang

Since the dawn of man we have been trading goods and services with our neighbors. Our ancestors bought bread with a bushel of apples, sold horses in exchange for homes and learned a tradecraft for the cost of a shirt. In those initial transactions we began the first steps of walking down a pathway that would ultimately create economies and markets and financial institutions that would continually be challenged, redefined and developed for thousands of years.

We are living in a time in which we, once again, are seeing major challenges, redefinition and developments in the way we trade goods and services with our fellow man. Financial Technology has been evolving from its early stages to becoming the catalyst that is forcing us to, not only reevaluate the established financial and banking institutions that have been around for hundreds of years, but even to reevaluate currency and the value of currency itself. It is causing a shift in the mindset and disrupting the status quo with so much force that the world you came into will be much different than the world you leave.

The evolution of FinTech can be seen through five distinct acts and, in many ways, is still in the process of evolving:

ACT 1: The Origins

1980’s and before

The micro-organisms of FinTech can be traced back as far as the 1950’s, but as computers and technology became more and more mainstream in the 80’s, it was only a matter of time before financial software would be developed to help banks and financial institutions better operate and serve their customers.

At a time in which the banking structure was strong, familiar and, for the most part, appreciated, the birth of Financial Technology is perhaps best likened to the creation of Dr. Frankenstein’s monster. The financial software was heavy and complex, and was added to these existing structures, at times, in awkward ways. Incorporating a new software program here and a new software program there required teams of people to operate and created various challenges, but, ultimately, to tweak Dr. Frankenstein’s classic statement, „It was alive!”, and it worked. Banks utilized the technology to better serve their customers and customers began the transition from cold, hard cash to numbers on a screen.

Computers quickly began to transform the way the global markets and the financial industry operated. In a world where FinTech was new and, at times imperfect, old regulations were needing to catch up with the new technology. This was a time in which governing authorities didn’t even know what needed to be regulated, and some of those authorities may not have even known how to turn on a computer. Insert a few bad apples, (think Wolf of Wall Street and Bernie Madoff not Macintosh), and suddenly there were small cracks in the age old financial structure. It wasn’t long before those cracks began to leak.

Act 2: The Revolution

2008

Soon those cracks turned into crevices and eventually the collapse of, not just the established banking system, but more importantly the trust of the people. When Lehman Brothers filed the largest bankruptcy filing in American history with over 600 billion dollars in assets, it wasn’t just the money that was gone from millions of people, it was their trust in the system. Suddenly, the banking and financial institutions that, for generations, had been seen strong and impenetrable was exposed in the public eye with all of its faults, weaknesses and dirty secrets. The world gathered around shouting „shame, shame, shame” as banks began a humiliating walk in Cersei’s Game of Throne shoes, or rather, bare feet.

This began a revolution. People began asking, „Is there another way to buy and sell goods and services without going through a bank that I no longer trust?” This question created an incredible space for former, highly experienced bankers to become the first FinTech entrepreneurs. Using their past experiences and bright visions of the future, they began creating FinTech startups such as Lending Club which supports Peer to Peer lending, allowing people and small businesses to borrow or lend money outside of the traditional system. They began paving a new road that would allow people to bypass the banking system that had let so many down.

This revolution became the alternative to our world of big banks.

Act 3: Experimentation and Collaboration

2013

It was around 2013, in our FinTech evolution, that new ideas were being developed and new limbs were beginning to be formed. While „The Revolution” wanted nothing to do with the established banking and financial systems, there were still many positive things about them. Were they perfect? No, but neither was our quickly evolving FinTech monster. Instead of compete with each other, banks began to rally behind the phrase: „Embrace FinTech”. New entrepreneurs were creating systems, software and platforms that had incredible advantages for both banks and clients. These included new interfaces that were user friendly, new ways of transferring money and thousands of other ideas that were revolutionizing the banking and financial industries. It was around 2013 that we began to see the collaboration between the big established banks and the small, FinTech Start-ups who were quickly becoming not so small anymore. One of the earliest example of this was seen when Simple was bought by BBVA in 2014, paving the way for a new conversation around the topics of collaboration and experimentation. In 2013, these conversations were at their beginning stages and this past year, 2017, continued to see incredible discussions taking collaboration and experimentation to the next levels.

Act 4: Education

Today

FinTech has evolved incredibly since the revolution of 2008. Through new start-ups, collaborations and incredible leaps in technology, FinTech has taken on a life of its own and many are unaware of its growth and future potential. Today, we find ourselves in a time of much needed education. Education for banks as they learn the power and potential of FinTech start-ups and how they can utilize them to better serve the client. Education for customers who now have new alternatives and ways of exchanging goods and services that contain both risk and reward. Education also for FinTech start-ups relating to the power of collaboration and the opportunities the future can bring for the betterment of humanity around the world. Creating a place to educate has become one of the driving themes of The Hearts partner, CFTE with their global platform.

Act 5: Global Transformation

Tomorrow

What can the future look like when shaped by FinTech? The incredible potential found within accessible financial information has the opportunity to transform our world as we know it. What FinTech is already doing in places like Nigeria and Kenya begins to paint for us a picture of what the future can be. FinTech is creating a world where a woman in an African village can own and operate a global business, with a few swipes on her phone, even though there is no bank for hundreds of kilometers. FinTech has given us the opportunity to have a full picture of the worlds wealth and a system for appropriately diversifying that wealth to alleviate the pain and suffering of our neighbors living across the globe. From the comforts of a German home in Berlin a family can send a hundred Euro to tsunami victims in India.

When the world is educated on the power and potential of FinTech, Global transformation will not be the end, but only one more small act in the evolution of FinTech.

~ Expert knowledge: Thibaut Rouquette