The Evolution of Fintech : A New Post-Crisis Paradigm?
“FinTech”, a contraction of “Financial technology”, refers to technology enabled financial solutions. It is often seen today as the new marriage of financial services and information technology.
However, the interlinkage of finance and technology has a long history and has evolved over three distinct eras, during which finance and technology have evolved together: first in the analogue context then with a process of digitalization of finance from the late twentieth century onwards.
Since 2008, a new era of FinTech has emerged in both the developed and developing world.
This era is defined not by the financial products or services delivered but by who delivers them and the application of rapidly developing technology at the retail and wholesale levels.
This latest evolution of FinTech, led by start-ups, poses challenges for regulators and market participants alike, particularly in balancing the potential benefits of innovation with the possible risks of new approaches.
We analyse the evolution of FinTech over the past 150 years, and on the basis of this analysis, argue against its too-early or rigid regulation at this juncture.
“Financial technology” or “FinTech” refers to the use of technology to deliver financial solutions. The term’s origin can be traced to the early 1990s and referred to the “Financial Services Technology Consortium”, a project initiated by Citigroup to facilitate technological cooperation efforts.
However, it is only since 2014 that the sector has attracted the focused attention of regulators, industry participants and consumers alike.
The term now refers to a large and rapidly growing industry representing between US$12 billionand US$197 billion in investment as of 2014. Moreover, depending on whether one considers start-ups (FinTech 3.0) only or the full spectrum of applications, including traditional financial institutions (FinTech 2.0).
This rapid growth has attracted greater regulatory scrutiny, which is certainly warranted given the fundamental role FinTech plays in the functioning of finance and its infrastructure.
FinTech today is often seen as a uniquely recent marriage of financial services and information technology.
However, the interlinkage of finance and technology has a long history. In fact, financial and technological developments have long been intertwined and mutually reinforcing.
The Global Financial Crisis (GFC) of 2008 was a watershed and is part of the reason FinTech is now evolving into a new paradigm.
This evolution poses challenges for regulators and market participants alike, particularly in balancing the potential benefits of innovation with the potential risks. The challenge of this balancing act is nowhere more acute than in the developing world, particularly Asia.
The Evolution of Fintech: A New Post-Crisis Paradigm? Written by:
The University of Hong Kong - Faculty of Law; University of Hong Kong
The University of Hong Kong - Faculty of Law; CFTE - Centre for Finance Technology & Entrepreneurship
University of New South Wales (UNSW) - Faculty of Law