Fintech is of course an abbreviation for financial technology and believed to have been first coined in the 1980’s by Peter Knight who was the editor of a business newsletter in the Sunday times. Fast forward to the financial crash of 2007 when the phrase started to become used far more frequently outside of the finance industry with venture capitalist firms starting to heavily invest in start-up Fintechs promising to prosper where the giant financial institutes had failed.
There may have been a time in the late noughties where Fintech still fell into the niche category, but for a number of years now it has been a huge industry that is widely recognised and still set for major growth. Indeed Fintech is big business; in the UK in 2015, the industry employed 61,000 people and contributed £20 billion to GDP. Misys is a good example of a business thriving in the Fintech space by offering various technology solutions that end consumers are demanding.
So the big question is; why has Fintech grown from niche to a powerful and disruptive industry? Why did it not stay niche? The root of the answer is bedded in the actions of the banking giants and the actions taken by various institutions and consumers in the wake of the financial crisis.
- Barriers to trade fell
Before the economic crisis, the Banks were largely protected from new entrants by legislation and working practices, but thereafter the regulators such as the FCA have welcomed diversity. Many new entrants such as Metro Bank are embracing technological solutions to offer consumers a differentiator over the Banks. The new entrants who are agile and highly responsive are in the perfect space to work with the plethora of Fintechs. As the new entrants take advantage of technological advancements, the Banks have also joined the bandwagon for fear of having their loyal customer base eroded.
The regulators embrace innovation
The regulators know that diversity within the financial services industry is required for future stability. They also recognise that customers should have the ability to choose who they want to bank with. In 2014, the FCA launched Project Innovate which seeks to engage with innovative firms in a constructive fashion. One project stream is the sandbox where firms can trial new innovative solutions in a controlled environment.
The Banks started to get fined
The financial services industry has a bad reputation for aging and volatile IT infrastructure. Before the financial crisis they were not under a huge amount of pressure to change and in the direct aftermath as budgets were cut, there was no money to either. In recent years the regulators have started to get more heavily involved in such matters, and making it quite clear that where poor IT infrastructure leads to a breach such as leak of data, there will be a significant price to pay.
- Technological advancements
One of the main advancements has been in mobile technology, with customers expecting to be able to bank on the go, quickly and securely. Furthermore, advancements in digital currency, robo advice, and mobile applications have provided further impetus for growth in the Fintech sector.
In summary, Fintech has been around as a term for longer than most might realise. The financial crisis and direct aftermath undoubtedly laid the foundation for the industry to be redefined and for innovative start-ups to be given a route in. These start-ups keen to find a competitive edge have exploited technology which has led to the eruption of the Fintech industry.
