Financial technology

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Financial technology (FinTech or fintech) is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services.[1] The use of smartphones to enable mobile banking and investing[2] services are examples of technologies aiming to make financial services more accessible to the general public. Financial technology companies consist of both startups and established financial and technology companies trying to replace or enhance the usage of financial services existing financial companies.

Definition[edit]

After reviewing more than 200 scientific papers citing the term "fintech", the most comprehensive scientific study on the definition of fintech concludes that "fintech is a new financial industry that applies technology to improve financial activities”.[3] FinTech is the new applications, processes, products or business models in the financial services industry, composed of one or more complementary financial services and provided as an end-to-end process via the Internet.[2]

Key areas[edit]

Financial technology has been used to automate insurance, trading and risk management.[4]

The services may originate from various independent service providers including at least one licensed bank or insurer. The interconnection is enabled through open APIs and supported by regulations such as the European Payment Services Directive.[5]

Global investment in financial technology increased more than twelvefold from $930 million in 2008 to more than $12 billion in 2014.[6] The nascent financial technology industry has seen rapid growth over the last few years, according to the office of the Mayor of London. Forty percent of the City of London's workforce is employed in financial and technology services.[7]

In Europe, $1.5 billion was invested in financial technology companies in 2014, with London-based companies receiving $539 million, Amsterdam-based companies $306 million, and Stockholm-based companies receiving $266 million in investment. After London, Stockholm is the second highest funded city in the EU in the past 10 years. Europe's FinTech deals reached a five-quarter high, rising from 37 in Q4 2015 to 47 in Q1 2016.[8][9]

In the Asia Pacific region, the growth will see a new financial technology hub to be opened in Sydney, in April 2015.[10] A financial technology innovation lab was launched in Hong Kong in 2015.[11] In 2015, the Monetary Authority of Singapore launched an initiative named Fintech and Information Group to draw in start-ups from around the world. It pledged to spend $225 million in the fintech sector over the next five years.[12]

Awards and recognition[edit]

Financial magazine Forbes created a list of the leading disrupters in financial technology for its Forbes 2016 global Fintech 50.[13]

A report published in February 2016 by EY commissioned by the UK Treasury compared seven leading FinTech hubs. It ranked California first for 'talent' and 'capital', the United Kingdom first for 'government policy' and New York first for 'demand'.[14]

Outlook[edit]

Finance is seen as one of the industries most vulnerable to disruption by software because financial services, much like publishing, are made of information rather than concrete goods. In particular blockchains have the potential to reduce the cost of transacting in a financial system.[15] While finance has been shielded by regulation until now, and weathered the dot-com boom without major upheaval, a new wave of startups is increasingly "disaggregating" global banks.[16] However, aggressive enforcement of the Bank Secrecy Act and money transmission regulations represents an ongoing threat to FinTech companies.[17]

Challenges and solutions[edit]

In addition to established competitors, FinTech companies often face doubts from financial regulators.[18]

Data security is another issue regulators are concerned about because of the threat of hacking as well as the need to protect sensitive consumer and corporate financial data.[19][20] Leading global Fintech companies are proactively turning to cloud technology to meet increasingly stringent compliance regulations.[21]

The Federal Trade Commission provides free resources for corporations of all sizes to meet their legal obligations of protecting sensitive data.[22] Several private initiatives suggest that multiple layers of defense can help isolate and secure financial data.[23]

Any data breach, no matter how small, can result in direct liability to a company (see the Gramm–Leach–Bliley Act)[24] and ruin a FinTech company's reputation.[25]

The online financial sector is also an increasing target of distributed denial of service extortion attacks.[26][27]

Marketing is another challenge for most FinTech companies as they are often outspent by larger rivals.[28]

This security challenge is also faced by historical bank companies since they do offer Internet connected customer services.[29]

References and notes[edit]

  1. ^ Infinite Financial Intermediation, 50 Wake Forest Law Review 643 (2015)
  2. ^ a b Sanicola, Lenny (13 February 2017). "What is FinTech?". Huffinton Post. Retrieved 20 August 2017. 
  3. ^ Schueffel, Patrick (2017-03-09). "Taming the Beast: A Scientific Definition of Fintech". Journal of Innovation Management. 4 (4): 32–54. ISSN 2183-0606. 
  4. ^ Aldridge, I., Krawciw S., 2017. Real-Time Risk: What Investors Should Know About Fintech, High-Frequency Trading and Flash Crashes. Hoboken: Wiley. ISBN 978-1119318965
  5. ^ Scholten, Ulrich. "Banking-as-a-Service - what you need to know". VentureSkies. Retrieved 16 January 2017. 
  6. ^ "The Boom in Global Fintech Investment" (PDF). Accenture. 2014. Retrieved December 9, 2014. 
  7. ^ "What is FinTech and why does it matter to all entrepreneurs?". Hot Topics. July 2014. Retrieved December 9, 2014. 
  8. ^ "Stockholm FinTech: An overview of the FinTech sector in the greater Stockholm Region". Stockholm Business Region. June 2015. Retrieved July 12, 2015. 
  9. ^ "Fintech Investments Skyrocket in 2016– Report". redherring.com. Retrieved July 12, 2016. 
  10. ^ "Sydney FinTech hub based on London's Level39 coming next April". BRW. November 2014. Retrieved November 26, 2014. 
  11. ^ "FinTech Innovation Lab in Hong Kong Launches With Eight Firms". Forbes. February 2015. Retrieved February 9, 2015. 
  12. ^ "Fintech – the next frontier for Hong Kong’s battle with Singapore?". Retrieved 2016-09-26. 
  13. ^ Samantha Sharf (November 7, 2016). "The Fintech 50: The Complete List 2016". Forbes. Retrieved 2017-04-30. 
  14. ^ "An evaluation of the international FinTech sector" (PDF). EY. February 24, 2016. Retrieved February 25, 2016. 
  15. ^ Tasca, Paolo; Tomaso Aste; Loriana Pelizzon; Nicolas Perony (2016). Banking Beyond Banks and Money: A Guide to Banking Services in the Twenty-First Century. Springer. p. 215. ISBN 9783319424484. Retrieved 16 November 2016. 
  16. ^ "How FutureAdvisor plans to shake up wealth management". Fortune. May 2014. 
  17. ^ "Criminalizing Free Enterprise: The Bank Secrecy Act and the Cryptocurrency Revolution". Westlaw's Computer & Internet Journal. July 2, 2015. 
  18. ^ "Old Laws, New Models". Taylor Wessing. October 2014. 
  19. ^ "Ensuring Cybersecurity In Fintech: Key Trends And Solutions". Forbes (magazine). March 2015. 
  20. ^ "Protect Your Assets: Cybersecurity + FinTech". Wharton Fintech. March 2015. 
  21. ^ "How FinTech Leaders Are Using The Cloud To Meet Compliance". Solgari.com. 
  22. ^ "Data Security". Federal Trade Commission. 
  23. ^ "Top 10 ways to secure your stored data". Computerworld. August 3, 2006. 
  24. ^ "Data Security Considerations for FinTech Companies". Bloomberg. April 23, 2013. 
  25. ^ "Financial Startups Reimagine Banking, but Security Still Paramount". Cloudbric. July 10, 2015. Retrieved September 15, 2015. 
  26. ^ "Banks Lose Up to $100K/Hour to Shorter, More Intense DDoS Attacks". American Banker. April 23, 2015. 
  27. ^ "How Hackers Make Money from DDoS Attacks". Fintech Ranking. April 23, 2015. 
  28. ^ "4 Rules for Late Stage FinTech Marketing". North Point Partners. July 2015. 
  29. ^ "Who lies behind the latest cyber attacks on JPMorgan Chase?". The Economist. August 28, 2014.