The technological revolution is here. Rewriting the rules by which we live, work and play, new technologies are transforming every aspect of our lives. Nowhere has this been more radical than the financial sector. From online banking to contactless payments, FinTech is rapidly changing how we spend, save, borrow and invest. Over 42% of digitally-active adults in the UK now use the services of FinTech firms; meanwhile, global investment in FinTech ventures more than doubled in 2018 to US $55.3 billion. FinTech is big business, and the overhaul of the industry is relentlessly gathering pace. But what does this mean for me and you, the consumer? As technology reinvents global finance, what opportunities – and risks – lie ahead?
FinTech – the portmanteau of finance and technology – is an umbrella term encompassing different technologies and services, from online banking to emoney to peer-to-peer lending. FinTech providers use advanced technologies such as machine learning and artificial intelligence to provide faster, cheaper and more convenient finance solutions. In short, FinTech makes banking easier. And that brings one big advantage for consumers: more control over our finances.
“With increasing usage of technology in financial services and banking, we see the emergence of new FinTech players transforming business models or improving business processes. These start-ups see the opportunity in unbundling traditional banking services and focusing on one area they are good at to serve retail and business customers efficiently and offer them tailored solutions,” explains Melike Belli (Banking and Finance, 2014), Market Development Manager at Cybertonica.
“Unlike traditional banks with legacy systems, FinTech companies use technology to focus on solving real customer problems. Their customers can easily open a bank account, make a payment, transfer, invest or save money using their mobile phones – removing the need for a physical branch, saving time and reducing costs for both FinTechs and customers.”
Empowering the consumer
“The financial services industry, traditionally, hasn’t been about customers. It’s been about profit and shareholders,” explains Katie Mills (Spanish, Portuguese and Latin American Studies, 2012), Head of Innovation at Schneider Electric.
“The reason challenger banks, FinTech companies such as Monzo and Revolut, have been successful is that they’ve really focused on their customers. To compete in the market, they’ve forced traditional banks to think in the same way and modernise their services. That’s put power back into the consumer’s hands, giving them a voice again in what they want from their banks. The FinTech revolution has empowered the everyday person when it comes to financial services.”
The demand for FinTech services in developed markets is largely driven by technologically-savvy consumers, seeking a more extensive and rewarding range of services. Yet in emerging markets, FinTech has the potential to be truly transformative by releasing individuals from economic impoverishment. According to the World Bank’s Global Findex report in 2017, the percentage of adults with a bank account increased to 69% in 2017, compared to 62% and 51% in 2014 and 2011, thanks to mobile phones and the internet.
“In emerging markets, consumers are likely enduring a chronical financial exclusion gap,” explains Professor Meryem Duygun, Aviva Chair in Risk and Insurance at the University and Director of the Nottingham FinTech Research Network. “FinTech is helpful in narrowing the gap. Catalysts such as rapid urbanisation, high levels of penetration in communication channels – mobile and internet – and ease of use, are driving demand for FinTech services in these markets.”
“Fintech has a huge impact to make across the globe,” echoes Katie. “In developing countries, it’s giving people access to banking and helping to alleviate poverty. You only have to look at M-Pesa in Kenya – a mobile money transfer service with 25 million Kenyan users – and how that revolutionised money for local people. FinTech is accessing a whole new group of people and enabling them to be part of the economy.”
So far, so good. There are tangible advantages for consumers in this new digital economy. But, there is a dark side to FinTech. Rapid changes through disruptive technology inevitably brings new risks.
“One of the major concerns people have towards using products and services offered by FinTechs is security,” said Melike. “With growing technology usage, we hear more and more about data breaches affecting even established companies and major platforms. Cybercriminals are leveraging artificial intelligence and machine learning to access customers’ personal and financial data, which leads to an increase in the cost of data breaches.
"As the FinTech industry is young and growing fast, the regulators’ role is crucial to help change customers’ attitudes," she continues. "The Financial Conduct Authority’s regulatory sandbox is a good example of a regulator supporting the industry’s sustainable growth while encouraging companies to innovate.”
“There are new risks that emerge with technology,” adds Meryem. “In particular, money laundering is particularly relevant as terrorism and modern slavery continue to grow. We’ve been working with the Rights Lab and partners in China to introduce an artificially intellectualised anti-money laundering system to help banks have more accurate and efficient money laundering transaction identification processes, preventing the financing of terrorism and modern slavery.”
The future of money
The Nottingham Fintech Research Network, led by Meryem and launched by the University in 2018, is bringing together researchers, practitioners, regulators and policymakers to advance our understanding of this new technology. A centre of excellence for FinTech scholarship, the Network seeks to identify and understand the new business models emerging through FinTech and their implications on the financial services industry.
“There is little doubt that FinTech represents the future, we just need to understand what shape that future might take,” said Meryem. “In the last years, we’ve witnessed a rapid growth in the FinTech industry, especially in emerging markets in Africa and Asia.
"If we think from the point of view of a new paradigm in the FinTech industry, an ‘eco-system’, FinTech is an eco-system that has the following pillars: demand for services, infrastructure, talent, capital and regulations", she continues. "Around the world, most of the FinTech hubs are more or less missing one of these pillars. In short, a perfect FinTech eco-system is yet to exist. So we expect the industry to continue to evolve as we witness FinTech expansion and the perfection of key eco-system pillars such as accommodating yet robust regulatory systems.”
So, the future of money is here with FinTech at the heart of the revolution. But as technological innovation drives progress, the power of the consumer will be more important than ever to shape a financial services industry for the benefit of all.
“The financial services industry was ripe for disruption and evolution,” summarises Katie. “In the past, it was very competitive, every bank out for themselves. In the FinTech space, we’re seeing a more transparent, collaborative environment, where people are focused on providing better services for customers. I think that’s a really positive trend moving forwards. I’m a little idealised in my view on technology, but I believe it’s about empowering the human race and making us better, across the board.”