History, Evolution & The Future Of Fintech Industry And Its Subdomain
History, Evolution & The Future Of Fintech Industry And Its Subdomain
Explore the evolution of fintech, its categories, and where the future of the fintech industry is headed.
Fintech
January 14, 2023
Sadman Sakib Khan
Sadman is a marketing professional and a fervent devotee of the ever-evolving world of marketing & technology. Possessing a knack for crafting compelling narratives, Sadman passionately engages in the creation of top-tier content in close partnership with esteemed subject matter experts. During his leisure hours, he indulges in the art of musical expression, immerses himself in cultural exhibitions, watch anime, and travel.
Sadman Sakib Khan
Sadman is a marketing professional and a fervent devotee of the ever-evolving world of marketing & technology. Possessing a knack for crafting compelling narratives, Sadman passionately engages in the creation of top-tier content in close partnership with esteemed subject matter experts. During his leisure hours, he indulges in the art of musical expression, immerses himself in cultural exhibitions, watch anime, and travel.
“Fintech is the future” is a phrase we hear daily. However, the question that arises in most people’s minds is “What problems do these emerging solutions solve?” Before we can figure out what the future holds, we need to understand the past. In this article, we will explore what fintech is, its background, and explain the different sub-domains of fintech.
What is Fintech?
Fintech, a term that combines “finance” and “technology,” refers to the use of technology to enhance, streamline, augment, and digitize traditional financial services. But, fintech, as we know it today, did not appear out of thin air. Fintech has existed since the 19th century.
History and Evolution of Fintech
As mentioned, technological innovation in the financial industry began in the 19th century. Technology has always been a key player in the financial industry. The evolution of Fintech can be divided into five phases. We will dive into these phases in more detail to gain a better understanding of the evolution of the fintech industry.
Fintech 1.0 {1886 – 1967}
This was the era when the finance industry started adopting technology. It gifted humanity with technologies such as the telegraph, railroads, and steamships; which catalyzed swift financial information transfer across borders. In 1860, a device called the Pantelegraph was discovered. This served as an early form of the facsimile machine. It could transfer handwriting, signatures, and even drawings over telegraph lines. And soon enough, this technology was adopted in banking to verify signatures back in the day. According to historians, the first footprint of fintech was in 1866 as this was the year of transatlantic cables. The era of creating network infrastructure and linkages all around the world. This led to the first electronic fund transfer via telegraph and Morse code – the first step of digitizing money.
Fintech 2.0 {1967-2008}
The era of ATMs marked a shift in the financial industry from analog to digital. The first handheld calculator was launched. Also, the world’s first ATM was installed in the Barclays bank. This was considered the modern era of fintech. Shortly after, various other trends took place in the early 1970s. The world’s first digital stock exchange, NASDAQ, was established, and SWIFT (Society for Worldwide Interbank Financial Telecommunications) was launched in 1973. This is the communication protocol between financial organizations that enables banks to securely exchange messages and transfer money in large volumes. Mostly used for international wire transfers and cross-border transactions. In the 1980s, the rise of bank mainframe computers, and the introduction of online banking occurred. By the beginning of the 21st century, the internal processes of various banks and even their interactions with customers have become fully digital. The launch of PayPal in 1998 gave us a glimpse of how technology would reshape the world of finance. This culminated in the 2008 Global Financial Crisis.
Fintech 3.0 {2008-2014}
Fintech 3.0 is the phase of start-ups. During this period, the Global Financial Crisis evolved into a general economic crisis. This caused the general public to question the reliability of banks and other traditional financial institutions. The post-crisis environment required stricter regulatory compulsions for traditional banks. The focus of the industry was to cut down operational costs. Which opened up the market for start-ups to come up with technological solutions. After Bitcoin was released in 2009, technologies like digital wallets made Bitcoin easier to use. In 2010, digital-only banks began to emerge.
Fintech 3.5 {2014-2017}
This phase of fintech marked a move away from the Western-dominated financial world. The two most populous countries of Asia, China, and India began to contribute to the fintech industry. Asian countries did not have enough time to develop a Western level of physical banking infrastructure. They were more open to developing digital solutions. Instead of large, complex physical banking infrastructure chains. An enhanced focus on consumer behavior and their use of the Internet to access information led to the expansion of digital banking with improvements in financial technology. SaaS developments such as m-Pesa in Africa, Chinese Alipay, and payment banks in India, etc., also emerged.
Fintech 4.0 {2018-Present}
Fintech 4.0, the era of disruptive technology. Controversial technologies and business models such as blockchain and neo-banking have entered the scene and started changing the game. Technologies such as Artificial Intelligence and machine learning have begun transforming the way people interact with banks and insurance companies. This phase is reshaping the financial market in a way that was never done before.
Domains Of Fintech Explained
As technology continues to improve and the constant changes in the finance industry, the word Fintech has become more of an umbrella terminology. The fintech industry has been categorized into various sub-domains. These subdomains can stand as micro-industries themselves. In this section, we will explain all the fintech sub-domains to provide a better understanding of what each entails. If fintech is a subject of interest to you or a possible career path. Keep reading as it will help you decide which category of fintech you should specialize in. The category has the most potential for a business or investment within your territory. So let’s jump into the different types of fintech —
PayTech (Payment Technology): Future Of Fintech Payments
Paytech, as the name suggests, uses technology to modernize payments. This includes everything ranging from everyday contactless transactions and e-wallet transfers to cryptocurrency and the Internet of Things (IoT). In the past, payments were an exchange of money. Where if you want something you give away the equivalent amount of money as payment. But now, with technology, there are e-commerce stores and wearable devices created to make our lives easier. The focus is on payments, rather than finance as a whole. In short, Paytech is the future of payments and it alone can stand as an industry itself in the future.
Problems PayTech Is Trying To Address
As payments are regular tasks that involve decision-making and counting, automating some of these regular payments can ease the stress and discomfort generated by these decisions. With the help of PayTech products, you can automate your recurring monthly expenses and pay for services or products from any country in the world. Additionally, Paytech in IoT, including mobile payment systems and wearables. Which has the potential to replace physical wallets. For example, you can show up at a store, pick up your items, and pay by scanning your wearable device. And, that’s just one way that PayTech is simplifying your payments.
Regtech (Regulatory Technology): Future Of Fintech Regulation
Regtech is a product of the 2008 financial crisis. The crisis led to an increase in regulation in the financial sector. The finance industry began to rely on technology to strictly enforce these regulations. Regtech, or regulatory technology, refers to the use of technology to manage the regulatory process within financial technology. This includes software that monitors transactions for compliance with anti-money laundering laws, or software systems that report data to regulatory authorities.
Problems RegTech Is Trying To Address
RegTech is trying to address some financial regulatory challenges. As we know regulation is complex and very difficult to understand. Which can cost companies a lot of time & money if not followed. Regtech makes it easier to follow these financial regulations by automating them. The way digital products are emerging. It also increases the risks of data breaches, cyber hacks, money laundering, and fraudulent activities.
Regtech is helping to avoid these issues with the help of technologies such as big data and machine learning. These tools monitor transactions taking place online in real-time. It identifies any irregularities or issues in the digital payment sphere. The companies that produce RegTech products usually collaborate with regulatory bodies. They use cloud computing and big data to share information.
LendTech (Lending Technology): Future Of Fintech Lending
Fintech is transforming the way we interact with money and has made the digital transformation of lending a reality. It is one of the latest innovations that quickly grabbed the spotlight. Lendtech, a subdomain of fintech, is all about creating a gateway for people to get loans at their fingertips. And It seems like Lendtech is here to stay.
Problems LendTech is Trying To Address
As Lendtech is focused on lending, the technology aims to address the problem of finding suitable and reliable customers by evaluating their creditworthiness beforehand with additional data. This way, non-traditional companies can fund individuals that traditional legacy banking sees as unqualified. This allows companies to reach people with low credit scores and credit-invisible individuals. Recent studies show that individuals feel more confident applying for loans through these Lendtech companies.
By innovating new ways to interact with providing credit to disadvantaged and moderate-income people. Lendtech is not only filling the financial gap but also unlocking new potentials for the global economy. An example of a LendTech company is WeGro, an Agri Tech value chain company that utilizes Lendtech & Wealth Tech to enable investors to directly lend their money to farmers. Creating a path for farmers to access investment without any hassle. But, it allows investors make money on Agri-ventures without even landing a single foot on the farm.
BankTech (Banking For Individuals): Future Of Fintech Banking
“BankTech” is a self-explanatory name. As the name suggests, it is the usage of technology that allows banks to focus on banking digitally. Unlike other domains of fintech, Banktech companies are not competing with banks. Rather, they are sharing their technological expertise with banks.
Problems BankTech is Trying To Address
In their main focus, banks are not technological organizations. Banking technology enables banks to develop their digital strategy and serve their customers even better. Let’s just admit, nowadays, banking has become something we do rather than a place to go. Bank tech enables banks and their customers to interact with each other digitally, providing better customer service and experience.
InsureTech (Insurance Technology): Future Of Fintech Insurance
With the existing trend up until now, it’s clear that InsureTech stands for insurance and technology. Although this sub-domain of fintech is still in its infancy, some fintech companies are strictly focused on disrupting the insurance industry with technology.
Problems InsurTech is Trying To Address
As the world embraces digital transformation, people now want to buy insurance with the tap of a button. InsureTech is making that happen. From harnessing data to provide better and tailored policies, to automating repetitive tasks using AI and replacing insurance brokers. InsureTech is focused on providing the best customer experience with insurance while also providing easy-to-interact interfaces.
WealthTech (Finance For Individual): Future Of Fintech Wealth Management
The definition of WealthTech is, again, clear from the term itself – Wealth and technology. To better understand its purpose, let’s start by learning what wealth management is. Wealth management is an advisory service provided by financial experts that focuses on the investment needs of clients. WealthTech is the digital transformation of that process.
Problems WealthTech is Trying To Address
WealthTech is an overlap between digital transformation and finance/wealth management. The concept of WealthTech covers any digital solution that helps make wealth management easier.
Future Of The Fintech Industry In A Nutshell
The future of the fintech industry will be shaped by some key trends and technologies that will help in the further development of the fintech industry. Some of these trends include
- Fintech vs. Banks: There will be even greater competition in the financial industry. More specifically competition with new fintech startups and banks. As the fintech industry is constantly evolving, more and more new ideas and new ways of digitally delivering financial services will emerge.
- Banking: More enhanced adaptation of technology in the banking industry. Digital banking will become more and more prevalent in the future. The key reason behind this will be the extreme competition between Fintech companies and banks. Which will further promote and increase the number of digital-only banks.
- Technology: Artificial Intelligence and Machine Learning Technology will be more intensely used in the finance industry. It’s expected that these technologies will further automate the work process and customer interaction within the financial industry.
- Blockchain & Cryptocurrency: The use of technologies such as blockchain that supports cryptocurrencies like Bitcoin, Ethereum, etc will more widespread. Which will further enhance the security and transparency of financial transactions. The use of cryptocurrencies will also increase worldwide.
- Increasing access and inclusion to finance: Fintech companies will focus more on delivering financial services to the population that’s labeled as undeserved or excluded by the traditional financial system.
- Greater regulations: As the industry grows and becomes more and more complex. Regulatory authorities will become more involved in monitoring the industry.
To sum up, it’s expected that the future of fintech will include continuous innovation and disruption, with new technologies and out-of-the-box business models, that’ll meet the changing need of consumers, and also create new ones.
Wrapping up
By now, you should have a better understanding of what fintech is, how it began, and how it is transforming the world of finance through its various sub-domains. If you previously thought that fintech was only focused on one specific category, you should now realize that it is not limited to a single area of finance. If you believe the fintech industry has potential for you, or if you are interested in starting your own venture in the industry, you should now be able to identify the category of fintech that aligns with your interests.
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