Fintech may be going through a modern-day revolution, but its roots go much further back. Well, that’s if you take the hardware with the software.
The industrial revolution was one of a kind. Never before had such a changing of the guard affected business in such a short space in time.
Labour shifted and production sped up as ‘modern machinery’ became a legitimately cutting-edge sector. The future was realigned more drastically than ever before in modern history.
That was until the internet – and today’s digital revolution – came along, drastically upgrading things like communications, trade, finance and entertainment in the blink of an eye.
The modern communications revolution is so broad that it can be divided down numerous lines, with fintech, perhaps, the most eye-catching of the lot.
‘Banks with more than 100 years of history are suddenly creating fintech-focused venture capitalist funds for symbiotic relationships’
– IAN POLLARD, KPMG
At its very essence, fintech is a simple form of disruption. Take any aspect of traditional financial services, add new modes of technology and watch the future change in an instant.
There are fintech start-ups now operating across a range of areas, from B2B to B2C, providing taxation software to currency applications, crowdfunding to mobility.
The revolution took a while to catch on but now, it appears, we’re at a key moment in time.
Consumers reap the benefits
Perhaps not what we generally consider fintech today, but from a consumer point of view ATMs are the grandfather of technology in banking.
Opening up the world of personal finance to humans’ antisocial hours, the first iteration came as far back as the 1960s.
Much like buses, the thirst for cash withdrawals on demand saw a raft of devices come on stream in a short space of time. A bankograph in New York was the first, but as it only let you lodge it wasn’t largely accepted by the public.
A few years later, Barclays brought out the world’s first ‘cash machine’, beating a Swedish variant by less than a fortnight. With that, fintech’s introduction into the public was born – and it would only speed up after that.
Soon you could lodge cheques, monitor balances and withdraw overdrafts, anytime, anywhere.
Time to get online
The creation of increasingly functional banking websites was perhaps the next pivotal step several decades later, allowing people to avoid queuing ‘in store’ for often trivial, easily manageable issues.
These sites evolved to eventually take in the vast majority of services that financial institutions provide customers.
Suddenly you could get provisional mortgage approvals, change savings accounts and transfer huge funds with the click of a mouse.
In more recent years, mobility took hold, with mobile banking and clever apps again easing the process by which we, the consumer, manage our money.
Not just manage it, but also spend it. Apple, Samsung and Google are just three companies trying to shift shoppers away from traditional cash transactions, instead using their devices to ease the process.
Barcodes can be scanned on phones and wages paid directly into accounts that prompt the user when the money has been lodged. Benefits, all across the board.
However, despite all these wonderful consumer tools, it is trading that has seen the biggest improvements.
The financial trade
A casual look at how stock markets have operated over the years shows, in its purest sense, the vast improvements brought along by fintech.
The evolution of trading finance – the computerisation of the stock market, essentially – continually improved by the decade, with the financial industry of the mid ‘60s alien to those operating in the ‘80s, before those alienating gaps in time got ever smaller.
Financial transactions entirely reliant on timing have reached a zenith, it seems, with tangible advances heavily affecting intangible operations.
“If I get price changes before everybody else, if I know a stock price is going up or going down before you do, I can act on it,” explained Michael Lewis, author of Flash Boys: The Wall Street Revolt, in an interview last year.
Lewis went on to claim the entire trading system in the US was “rigged” by time constraints.
Basically traders were victims of their equipment, with those using faster fibre cables getting a sneak peak at prices before those without.
“The time advantage of a high-frequency trader is so small, it’s literally a millisecond. It takes 100 milliseconds to blink your eye, so it’s a fraction of a blink of an eye, but that for a computer is plenty of time.”
When you’re discussing milliseconds you know you’ve reached extremes. Here is an excellent Radiolabs podcast on this very subject:
But it’s when you look behind the cables, the machinery and the computer screens that you see the dawn of this decade’s dominant success story: modern fintech.
Burgeoning beyond belief
The last few years have seen start-ups emerge across a plethora of different areas of finance.
Things like payments and transactions, mobile banking, commodities, crowdfunding, retail banking, risk, security, cryptocurrenycies and insurance are now ripe with fledgling businesses, each seeking to influence proceedings with often one, key USP.
And it’s something that has caught the eye of the money men.
Fintech start-ups in the UK and Ireland raised more than £461.3m from investors between 2008 and 2013, while Q4 of 2014 was the most active quarter in the sector’s history.
Ironically, some feel this is down to the financial crisis, creating a storm of interest that was kept out of the loop for too long.
“The financial crisis meant that a few financial services giants stopped investing in R&D,” said Level39’s Eric Van der Kleij in an interview earlier this year.
That, now, has changed. A recent KPMG report explained that today’s “symbiotic relationships” have emerged because established, weighed-down financial institutions are happy to take smaller, “nimble” fintech start-ups under their wing.
“Banks with more than 100 years of history are suddenly creating fintech-focused venture capitalist funds,” explained Ian Pollard, where they get staff to mentor start-ups, form research teams, write API layers and attract “newly formed ventures to company-sponsored accelerators and hackathons”.
An Irish charm
It’s new, it’s bold, and it’s increasingly Irish. Housing many of the world’s leading financial institutions, Ireland – and Dublin in particular – is at the forefront of this revolution.
Almost 30 years since its brazen creation along the banks of the River Liffey, the IFSC – no longer a region, now a countrywide project – now houses 500-plus firms. Average salaries on site were €60,000 according to the most recent figures, with well over 35,000 people employed in its businesses.
According to a report in 2010, 5pc of all cross-border financial services activity in the 27-member EU was conducted from here alone – with operations only growing.
It has helped foster companies throughout the country, targeting disruptive services on their way to the big time. New operations like CurrencyFair, Trustev and Fenergo operate in a field containing the likes of Accenture, Pramerica and Fidelity Investments, with other countries seeking their slice of the pie.
“The financial services industry is being re-imagined by the accelerated adoption of new technologies by financial institutions and a corresponding surge of innovation and new ideas from small, entrepreneurial companies across the UK and Europe,” said Julian Skan, Accenture MD for FinTech Innovation Lab London – the company has a Dublin equivalent.
The number of incubators rises as greater entrepreneurial minds come up with greater ideas, continually feeding into an industry on the up.
When the big boys are backing it
The list of Irish start-ups in this area alone reads well into the dozens, with numerous others getting in on the act in other countries.
Plenty of the software generated by the likes of Corlytics and Antuar will never be spotted by the average Joe, despite the potential to markedly improve banking operations on the back end.
However, when you hear of well-known financial institutions talking up start-ups or seeking out entrepreneurs, you can be sure it’s a serious project.
Because without these, we’d still have to queue for hours in banks, keep log books and yearn for the days when machines could spit money out at us well into the night.
Siliconrepublic.com’s Fintech Week (17-21 August) brings you new stories every day from this exciting new field. Get updates by subscribing to our news alerts or following @siliconrepublic on Twitter.
Main image via D Coetzee on Flickr