The financial services sector is currently undergoing, in my opinion, possibly the most profound transformation in history, and it will be a positive force.
The seismic changes we are currently seeing are so impactful and far-reaching that I believe these contemporary shifts are comparable to other financial sector milestones, such as the Rothschild family establishing their banks in the late 18th century, the deregulation of the sector in the 1980s and the 2007-2008 global financial crash.
What is driving this industry evolution? Simply put, it’s financial technology, known as fintech. Fintech, which is the use of technology to deliver financial services to consumers, is redefining and reshaping the sector in fundamental ways, and its growth is being fuelled by significant and increasing amounts of investment.
Global investment in fintech was $17.4 billion last year, representing a jump of 11%, according to PitchBook. In 2014, there were $12 billion of investment, up from $4 billion the year before, per The Economist. It is this continual upward trajectory that means the sector is only going to continue to prosper.
This fintech revolution — because that is surely what it is — has already, and is continuing to, change the world of financial services. Mobile banking apps, peer-to-peer lending, cryptocurrencies like Bitcoin, robo-advisors, and crowdfunding are all part of this monumental shake-up and shake-down of the sector.
The reason this is happening now, I would suggest, is the 2007-2008 global financial crisis. Traditional financial services providers were, in most cases, spectacularly caught off guard by the crash. In the fallout, they were understandably busy dealing with the new regulatory landscape that prevailed in the aftermath, evolving client expectations and, for some, the massive financial penaltiesthat were imposed on them. As a result, business and technological developments were way down their to-do list. They were too focused on regrouping — they were in survival mode.
However, simultaneously, some of the most exciting technological innovations — things that have changed our lives and our society — were coming to market. Uber, now the biggest taxi firm in the world despite having no cars, Airbnb, now the world’s biggest BnB/hotel chain despite owning no properties, and Amazon, now the world’s biggest retailer despite having almost no shops, among many others, all came about or same into their own during this period.
It was not so long ago that Amazon wasn’t making any money, but now it is a retail tour de force. How did this come about? It was due to technology and, specifically, software. Next year, the first self-driving cars are expected to be available to the public, and within a matter of years, the whole automotive industry is likely to be disrupted forever. Which firms are leading the way in this area? Is it the major car manufacturers? No, they are in most cases too focused on simply making better models of existing cars. It is the tech firms, like Tesla, Apple and Google, that are set to take the lead.
It’s the same in the financial services industry. Fintech firms are filling the void left between what traditional financial services companies, especially the traditional banks, are offering and what customers are now expecting, especially in terms of customer experience.
While many people are so conditioned by what they’ve been taught for so long — and fundamentally scared of considerable change — the shifts are happening in real time and quicker than ever before. We should not only accept them but embrace them.
In terms of fintech, I believe the shift will be a positive force in three main areas.
First, for clients: Increasingly, clients want all their financial services needs to be dealt with online and/or on their mobile devices. They demand personal service and instant access anywhere and at any time. Fintech is allowing this to happen. Frankly, if you have a great idea these days but you can’t do it on your phone, I wouldn’t bother, as it will not likely be successful. On-the-go is on the up and up.
Second, for society: Fintech is speeding up the advance of financial inclusion. It is providing access to financial services for millions of people who live in remote areas or might normally not be able to use financial services because of the biases of traditional financial firms. For example, fintech allows money transfers to support families in international destinations who depend upon income from elsewhere. It also provides financial advice for those who cannot afford it from mainstream advisory firms, which increasingly only deal with the wealthy. Helping individuals and companies successfully manage, save and invest their money will only result in a better society for us all.
And third, for businesses: Fintech is giving firms the opportunity to diversify, cut costs, meet regulatory requirements and improve the client experience, which will help build long-term relationships and trust.
Of course, there will be challenges in the fintech sector, such as learning how to best meet changing compliance targets, and firms need to get smarter to address this head-on and ahead of the curve. But fintech is helping to create a better, more connected world in which more people than ever before will be able to meet and hopefully exceed their financial goals.