The last global economic crisis was in 2008 and a decade has since passed. The subprime mortgage market in the USA lead to a full-blown international banking crisis that would take the world just over a year to recover. In this article, we will explore a little bit on the advancement, as well as how Fintech (Financial Technology) used to be, and how far it has come since the 2008 crisis.
Financial Technology is not something new, even though the word itself is commonly associated with things such as online banking, payment processes, app payments, etc etc. But in fact, Fintech has been around just as long as Financial services have, albeit the technology part was vastly different in the past. Look at the abacus! Now we have calculators on our phones and even our watches. I’ve even seen calculators play Doom!
Things that were considered revolutionary or game-changing back then would most likely be considered completely redundant in the present day. But if it can help make life easier in the financial world, it was considered Fintech. And as with all things in the chain of evolution, sometimes one particular thing is needed so that we know how/where to advance next.
Early Use Examples of Fintech
For example, most people will agree that cashiers’ cheques are pretty much outdated in the modern day. With the inclusion of Automatic Teller Machines (ATM) located everywhere for convenience, there isn’t much use for them and their usefulness decreases as times go on, but in some places and in certain situations, having a cashiers’ cheque can come in handy. But this piece of paper can also be considered Financial Technology.
It’s reported that it was in the 1700s when serials numbers were first placed on the cheques to help keep track on them. Even these small details such as adding in serial numbers onto cheques can have a significant impact in the financial world.
Of course, we also have the credit card and its origin can be thanked by The Diner’s Club, which was established in 1949. A few years later, it would go on to help give birth to basically what we now call the modern-day credit cards, which BankAmericard (Now called VISA) and Master Charge (Now called MasterCard) helped come into existence in the 1950s and 1960s. You can read the rest of the history in our The History of Credit Card’s article.
The internet was around for private military connections for a decent time (Roughly a decade) before it was “made public” for linking commercial networks and enterprises. As soon as it was, however, the public internet usage boomed and so did Financial Technology. Banks were able to sophisticate their networks, upgrade their record-keeping systems and overall improve the financial technology infrastructure that they had. The internet would go on to help improve just about every field in the banking world which in turn help advance e-commerce business models.
Within the internet era, we’d also see the birth of third-party payment websites such as PayPal, which was established in 1998 and would later become a subsidiary of eBay in late 2002. By then, we also had electronic trading, mostly replacing the open outcry stock exchanges of old. So, as you can see, with the internet and improvement of communications technology, financial technology was able to make a big jump.
Since the 2008 economic crisis
Even with all the advances of Fintech, the 2008 economic crisis still managed to cause problems and send the majority of nations into a great recession. Financial Technology isn’t just about streamlining payments and making things more convenient and quicker. Companies are always in a race with each other to see who can provide the best…well, everything.
Everything counts for a fintech company as there are a lot of competitors out there all looking to be the next best in their field of work, whether it be speed, security or something else and since 2008, the Fintech industry has had a real chance to bloom.
Why is this? One major reason could be that after the collapse of the global economy, it left much of the public with a lack of trust with banks. Upon revelation of the subprime market loans, the public began questioning the banks’ systems and infrastructure, as well as their competence.
This left a lot of opportunities for Fintech companies to offer their services to the people, and the economic crisis had people gladly accepting their services. Remember, necessity is the mother of invention and of course it was right after this crisis that Bitcoin was born. The demand for “other party services” greatly grew. If something could be done without the need for the user to go through a bank, and if it could be proven secure and swift, then it was welcomed.
Smartphones and Technology
Personal Smartphones play a huge role when it comes to the boom of Financial Technology after the 2008 economic crisis. These Smartphones have come a very long way since it’s “first real” product that was released in August 1996 (The Nokia 9000 Communicator). Since the releases of the first iPhone and other smartphones such as Nokia N95 in 2007, we now have very powerful devices that can fit into our hands. The phones that we have today have thousands of times more power than the computers had during the mission to land on the moon!
Throw in high-speed connectivity that keeps the entire world connected consistently every single day, as well as a wide range of coverage thanks to satellites and powerful computers/phones that are capable of doing just about anything and you no longer need the physical presence of banks to do simple things such as payments. When was the last time you went to an actual bank, just to transfer money?
The ever-advancing technology that we have now, keeps the “entry barrier” for private users low. For example, as long as you have a phone and internet, you can go and download, create and keep a Crypto Wallet on your phone right now. No identification or signing of papers needed and you don’t even have to get out of bed.
So, as you can see, technology is a big factor that comes into play. It’s not just smartphones, but also things such as Automatic Teller Machines, Personal Computers, Payment Processors and all the thousands of software that we know and the other hundreds of thousands of software we don’t.
Because everybody has a smartphone or their own personal computer, software is a very important part of Fintech. Many Fintech companies will have their own APIs or programs for you to use in order to use their service. And more often than not, you may also find that bank apps are developed by Fintech companies, as the banks outsource jobs to them.
Right now, the industry is doing well and at the moment, the future seems bright. But as always, as Technology becomes more and more advanced, it becomes more difficult for individuals and companies to get to “that next level”. But when that “next level” of tech comes along, we will once again see another boom of Financial Technology.
Cover illustration artist vishalgoyal, DeviantArt