Just what is fintech?
One regulator says: “Fintech is the R&D function of financial services in the digital age... less to do with technology, more to do with business model reinvention and customer-centric design.”
The regulator divides fintech into:
- Traditional fintech facilitators – larger incumbent technology firms supporting the financial services sector; and
- Emergent fintech disruptors – smaller innovative firms disintermediating incumbent financial services with new technology.
Fascinating. Particularly considering that, a little like the debate around the definition of a digital bank, it begs the question: what do we really mean by fintech?
I think of fintech as being a new market that integrates finance and technology. This market is a hybrid of the traditional processes of finance – working capital, supply chain, payments processing, deposit accounts, life assurance and so on – but replaces their traditional structures with a new technology-based process.
A whole new industry
The term fintech describes a whole new industry. It’s a little like saying that Amazon is a retailer. Is it a retailer or an ecommerce company or both? I would claim that it is a digital service provider of fulfilment, but that is purely because it fulfils consumer orders as well as cloud-based services delivered through Amazon Web Services. In other words, Amazon is not a retailer at all but a company in a whole new market place.
In the same way, I don’t think of fintech as an R&D function of finance or as traditional fintech, as this is a new emergent market of digital finance that will, over time, displace traditional financial markets.
In particular, the idea of “larger incumbent technology firms supporting the financial sector” refers to last-century technology providers to banks, such as IBM, Unisys and NCR. These are not fintech firms, but last-century bank technology service providers.
In addition, describing emergent fintech as “disintermediating incumbent financial services with new technology” may also not hit the mark as some of the incumbents are becoming fintech companies and some fintech companies are providing services to incumbents. For example, is Moven a fintech company? Moven is partnering with Toronto Dominion Bank in Canada and Westpac in New Zealand to enable those banks to offer a cool front-end, so maybe not. But does that make Moven a traditional fintech, supporting banks and not disintermediating them?
New, fresh, vibrant
The reason I’m picking up on this space is that I do care about being in a market that is new, fresh and vibrant. A market filled with youth and new blood. A market that rejects wearing ties and the tradition that goes with the suits. A market that wants to rock the world of finance with technology. That is the market that I think of as fintech.
That new world is supporting, displacing and disintermediating old-world finance with technology. It is recreating the world of finance with technology. It is creating a 21st century world of finance based on technology. That to me is fintech.
Fintech builds a new world of finance using a digital core that is IP-enabled. It sits hand in hand with the digital bank as the new definition of finance and banking.
Fintech is a new market. It is 21st-century finance. It is the new form of banking and is related but very different from the old form. Some of the old-form players will metamorphose into these new digital fintech players. Some won’t. Some of the new players will take over the markets of the old incumbents. Some won’t.
What you end up with is a hybrid new market of IP-enabled financial firms including digital banks and digital insurers that see their work completely through technology at the core. That is the fintech world I want to work with.
Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.
