The History And Evolution of The Fintech Industry

Financial technology or fintech, as it is called, covers a wide range of operations from financial organizations of banking to non-financial ones like payment services. As in any other industry, technological innovations and solutions have majorly elevated financial operations. Observing the timeline of the last 100 years, beginning with the first transatlantic cable in 1866 to bitcoins currently, fintech has been evolving and innovating.

The focus, attraction and attention of investors turned to fintech on a large scale only from 2014, eventually leading to a funding of $111.8 billion in 2018. A closer look reveals that the Global Financial Crisis (GFC) of 2008 was a turning point and fintech started moving into a new paradigm ever since.

Intertwining of information technology and fintech surged in the mid-1990s when finance industry was the largest buyer of IT and it retains the status even today. The start-up boom has now resulted in several of them investing and innovating in fintech. After the 2008 crisis, innovation was needed in fintech to revive and sustain in the market. Stricter regulations were in place forcing banks to prepare for risk management more than ever.

Banks and fintech start-ups do not disrupt each other’s businesses. Although they have their own directions to operate, collaborations between them could propel fintech far into the future.

Here is the history of evolution of fintech over the years

Fintech 1.0

The first step was towards building necessary infrastructure like the first transatlantic cable in 1866. Advancements like telegraphs, international railroads and shipments enabled sharing financial information globally. Fedwire in the USA in 1918 was the first electronic fund transfer system that used telegraph and morse code to achieve the feat.

1950s saw credit cards for the first time when Diner’s Club introduced it in 1950 and was followed by American Express Company in 1958.

This period laid a strong foundation for what was to come for the next few decades.

Fintech 2.0

This period was marked by digital transformation by traditional banking systems. They focused on digitalization of finances, thereby reaching more customers, and making the process easier for everyone.

The world’s first ATM was introduced in London in 1967, and the same year saw the prototype of the first handheld calculator. These marked the beginning of modern fintech, leading to some of the most important innovations.

One such turning point was the introduction of the world’s first digital stock exchange by NASDAQ in 1971. This has grown and developed into IPO, as we call it today. The current financial world functions mostly on stock exchanges today.

1973 witnessed the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which was formed by 239 banks as a common utility for cross-border payments. It remains the most used platform for communication protocol and international payments. Before its introduction, Telex was used for confirmation of international fund transfers, but it had several flaws like slow speed and security concerns. SWIFT was the solution, and the portfolio keeps expanding till date connecting over 200 countries, 11,000+ institutions and transferring more than 7.8 billion messages.

1980s upped the ante by introducing online banking.

Just after a decade, in the early 1990s, computers became a part of everyday life, boosting the presence of internet and e commerce business models.

The Single European Act was finalized to bring the European community under one market by 1992. This was a prime example to bring an economic stimulus within the 12-member community and it was successful. It was achieved by non-tariff barriers to cross-border intra-community trade and investment.

The years 1997 and 1998 were significant because the first online payment was introduced, and the giant PayPal was founded, respectively. These were accentuated in 1999 by the Dot.com bubble.

The gamechanger called 2008

Everything seemed well until the global crisis in 2008, putting an end to the second revolution in fintech. The impact was so massive that the finance industry had to have damage repair reforms handy, and ready to be deployed, should another occurrence affect them.

This pushed even other industries like IT to downsize their teams and operate with minimal human resources. This increased the use of technology as well. Previously existing infrastructure mismatch was resolved with increased usage of technology. A prime example would be the growing usage of smart phones, thereby increasing the point of sales.

New agencies like P2P or FX platforms comfortably found their space, thanks to the lack of trust the public had on formal banking institutions.

Fintech 3.0

After 2008, the start-up boom levelled the playing field and gave different agencies a chance at fintech. The release of bitcoins in 2009 resulted in a crowdfunding platform that was rewards-based. Crowdfunding also became popular with small and medium sized businesses, removing the need for investors.

2011 saw the launch of wallet payments. Mobile wallets and payment services may make one question the necessity for banks. It largely applies to a population that does not have a complicated financial system. For most of the population, large amounts like salary is still credited in banks. Thus, one cannot eliminate either of them because of the presence of the other.

Eventually, the global fintech investment rose to $111.8 billion in 2018.

Fintech 3.5 – the emerging markets

The emerging markets and trends have restructured fintech with more openness, automation, and customer orientation. The view that banks and start-ups as opposing forces should end, and a collaborative effort will take this to unimaginable levels.

The X factor lies in the start-ups choosing the right bank partners, and not fall for branding and prestige. A strategic relationship with the right levels of investment is what would make the collaboration a success.

The share of U.S personal loans offered by fintech is at 38%. The share of Americans using digital banking is expected to reach 65.3% by 2022.

Evolution of technology helped fintech in a lot of ways. To delve deeper into the world of into the remarkable innovations reshaping the world of fintech, contact the team of experts and embark on an enlightening journey at the forefront of technological evolution.

Read our previous blog, Protecting Financial Institutions: The Advantages of Cloud Security