Super-fast networks, open platforms and quantum computing have the potential to bring fintech to the next level.
With our Fintech A to Z, we’re deconstructing the key terms and trends cropping up in discussions around fintech.
Plenty of up-and-coming and established fintech players are focused on the payments space, and here we move onto the critical structures needed to support proposed innovations in payment services, including high-speed networks, open-source software and quantum computing.
In the financial world, speed is key. Not just in terms of making the deals as fast as possible to secure the best outcome, but also in terms of transferring information in an increasingly security-conscious, data-driven world.
One of the big talking points now is ensuring that every single transaction is traceable, right down to the exact time at which it was completed. From this, a whole industry has developed within the fintech sector to find ways to increase the availability of the highest network speed and also reduce any latency issues between the time a transaction is made and when it is registered on the other end.
Unpredictable high loads on servers – at times created by a surge in trading – can be the deciding factor on whether a trade can go through or not. Today, the timestamps demanded to prove that no market manipulation has occurred don’t just come down to seconds, but specific nanoseconds, and even picoseconds.
It seems quite contradictory in a world where financial gain and profit-making is the end goal, but the world of fintech is increasingly becoming a source of some of the leading open-source software out there.
However, when we talk about open-source software in the fintech sphere, we’re not talking about free software available to the masses. Rather, this is software that has been made available to all banking institutions for a small fee.
The fee is small because this is an increasingly competitive market into which tech firms are looking to move, and open-source software represents a much lower cost than buying a licence from a traditional developer. Typically, this competition within open platforms also leads to greater innovations being made, with fintech firms being able to adapt their own tweaked version of a software or API.
Perhaps the largest of these open-source platforms for fintech has been provided by the Open Bank Project, which offers a means for banks to create their own APIs to analyse the increasing amounts of open data being made available by the likes of government bodies.
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Today’s payments are processed through an increasing number of platforms, with standard cash, card, direct debit and standing order options of old complemented by the influx of mobile wallets, contactless options and any number of point-of-sale variants.
Mobile adoption has driven the latest stage of payment innovation, and mobile wallets like Apple Pay and Google Wallet have emerged as viable alternatives to direct debit cards, allowing users to utilise their smartphone – which is never far from reach – rather than dipping into their pocket or purse. This has been challenged by standard institutions that have gradually brought in contactless options with debit cards, usually for small amounts of money. All of it is quick and easy, which is something that customers love.
Online, payment architecture is different once again. Intermediary companies such as PayPal emerged in the early stages of the digital revolution, offering secure ways to purchase items on the web. This was especially handy when it came to the likes of EBay, when customers bought from average Joes.
Now, our options are getting increasingly futuristic. For example, MasterCard has said it plans to accept selfies and fingerprints as alternatives to passwords and codes for online payments. Many of these companies have ‘payment gateways’ to satisfy these processes, which are ways to link up consumer payment information with bank information.
PSD2 is the EU’s latest ‘legal foundation’ for a common payments market. It replaces a similar 2007 directive now that the payments industry has shifted in the past decade, and has become crowded.
Take micropayments (very small transactions, such as an app for 99c), for example. For a bank to process these types of transactions, it may not seem profitable. So, smaller go-betweens are set up that deal specifically with these transactions, and an overarching legal framework for all this back and forth with your money was required.
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An inconceivable amount of data is likely to be generated in the coming years, and even decades, which requires increasing computing power to churn through it all. While current computer systems are just about able to handle capacity at the moment, a look into the fintech crystal ball shows that quantum computing could support the future of processing millions of transactions in seconds.
The conventional bits in the computers and phones we use in our everyday lives work off the binary system of ones and zeroes, but a quantum computer bit has the added ability to be a one, zero or both. With this, its capacity to speed through problem-solving is simply unmatched when compared to our everyday binary computers.
QxBranch is a fintech start-up looking to harness the latest developments in quantum computing, which can be applied to powerful analytical algorithms on a scale that leaves current binary supercomputers in its shadow.
In numbers, today’s quantum computers can be as much as 100-times faster than current systems, which means that all those applications for fintech firms within the world of AI (including machine learning and machine-to-machine communication) can be done an awful lot faster, too.
Given that quantum computing has yet to go beyond an advanced research stage with limited access, it will be more of a case of watching this space for fintech companies, at least for the near future.
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The complete fintech A to Z
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