We’ve come a long way since the introduction of the ATM in the 1960s, at the time the pinnacle of financial technology.
In today’s world, the prevalence and meaning of FinTech can appear endless. From mobile and internet banking, machine-learning, artificial intelligence (AI), and big data, the technology being developed in financial services continues to progress at a rapid rate in order to keep up with demand.
As FinTech capabilities and usage continues to spread, so does consumer expectations. This is where older, more established businesses are growing concerned. They are fearing the prospect of losing customers to newer, nimbler, start-up ‘disrupter’ competitors.
That is because innovation in financial services today is being driven by FinTech start-ups and new industry entrants. Monzo, the UK-based digital bank, for example, has an immediate advantage over older competitors that are having to adapt and digitise. Monzo doesn’t have the arduous and cost-sapping tasks of digitising processes or transferring documentation online – because it was built to be online.
So, traditional firms are faced with a choice: they can try and build their own capabilities, likely at high cost, with regulatory hurdles to overcome, and long timeframes, or embrace FinTech partners as collaborators.
Working with new-entrants that have come through incubator or accelerator programmes to innovate and improve legacy systems could be win-win for both parties. Digitising a paper process is not innovation. It must be new and improve customer experience. This is where collaboration can provide a much-needed injection of energy and, in some cases, drag traditional institutions kicking and screaming in to the 21st century.
There are groups, such as FinTech Scotland, that can help facilitate these collaborations by bringing together different organisations from the financial sector, the public sector as well as education institutions such as universities and skills agencies, to encourage dialogues and conversations around how these new technologies are used as well as to drive further innovation. FinTech Scotland currently benefits from a secondee from the Financial Conduct Authority, presumably to advise on regulatory compliance and to flag regulatory gaps to the FCA as these emerge.
As we all try to navigate the use and purpose of FinTech, it’s important to consider whether it’s being used within the correct legal boundaries. What are the contractual aspects of taking on financial technology? This can be a challenge with any type of technology, as new laws need to be developed to keep up with the accelerating pace of technological advancements.
Society more broadly is changing and adapting to FinTech. We’re seeing a tech-savvy generation openly embrace FinTech advances, albeit with a growing sense of caution, particularly around data protection. This strong, growing level of understanding and openness towards FinTech is already driving a change in consumer mindset, and it’s one banks and industry are looking to capitalise on – quite literally.
Look at Blockchain as an example. Originally invented for Bitcoin, the digital currency, the tech community is now finding other uses for it. However, for a piece of technology that could completely change the way in which society operates, there are still many organisations and consumers that have yet to get their heads around how to use and successfully apply it.
There are many instances where Blockchain can be used to solve existing and future problems. Some examples include:
• Smart contracts – contracts which self-price, self-execute and self-verify.
• Supply chain and trade finance – improving cross border shipping through blockchain. IBM and Maersk have come together in a joint venture.
• Tracking the ownership of digital assets and physical assets – for instance the ownership of digital art or diamonds. Everledger enables traceability which is reducing the risk of fraud in the diamond industry.
• Verification of land ownership – Honduras and Georgia are using Blockchain for their land registry records. Sweden is looking to go this way. In the case of Honduras, Blockchain could reduce corruption, violence, eviction and land grabs.
Home to more than 70 FinTech companies, Scotland is proving to be the perfect setting for this and with collaboration of this scale and monthly meet-ups in Open Banking and Blockchain, we are bound to see some exciting developments in FinTech transpire as a result. Already this year we have seen the announcement by Hong Kong headquartered FinTech specialist Actelligent that it intends to set up its UK and European base in Edinburgh.
It’s true to say that 2019 is going to be a big year for FinTech. As Blockchain continues to develop and technologies like Artificial Intelligence (AI) are being adopted more and more, the opportunities for businesses and their customers seem boundless.
Now, more than ever, it’s going to be important that organisations make themselves more agile and data-driven, and understand the changing regulatory landscape to ensure these new technologies are profitable, effective and deliver the best outcomes for everyone.