During summertime, the silence of my local streets is broken by the ringing bells of the Ice-cream vendor. A great commotion follows and children run like ants to choose their indulgences from cola to orange to cream. As I stand beside the pushcart, I am obliged to notice many badges hanging from the rim as a reminder of the vendor’s chivalry (he braved the heat indeed.) Upon close inspection, one would discern them to be the QR codes – Google Pay, Amazon Pay, Paytm, RuPay, UPI. The list is long.
“Die Religion ist das Opium des Volkes,” said Karl Marx. Technology is the newest religion and for its humble worshippers, the newfangled hymn is “FinTech”. Surprisingly, the word ‘FinTech’ adorned the pages of the lexicons only in 2018. But the story begins in 1860 when ‘Pantelegraphs’ were used to verify bank signatures.
The 20th century saw great innovation with the introduction of credit cards in 1958 to ATMs in 1967. The stock markets were computerized. SWIFT banking system was introduced. PayPal was launched.
After the crash of 2008, newer products started developing aiming to reduce operational costs. In 2009, Bitcoin was launched. Blockchain, Open Banking, Robo-advisor, peer-to-peer payment, Micro-Finance, BNPL services, Insurance, Trading, crowdfunding, embedded finance, and more are the arenas in which financial technology startups are innovating and disrupting today.
FinTech firms are giving banks a run for their money. However, amid the cacophony of innovation and excitement about emerging technologies, measured skepticism is necessary.
Pause reading and visit –Forbes Global 2000 companies in 2021
What do you see?
Banks are big. In the top 10 spots, 7 are related to the financial services industry. Big Tech firms are venturing swiftly into the industry.
The traditional banks have an enduring reputation, huge customer base, profitability, and government-backing which makes them truly ‘big’ in power and participation. However, the system suffers from many hitches. “Today is a bank holiday.”, “My Loan didn’t get approved”, “Cheque is dishonored”, “Ah, the interest rate!”
Banks are boring. From crushing interest rates to pestering calls by bank operatives to take a home loan, the banking system is slow and expensive.
It is in these ineptitudes of the banking system that FinTech firms have found pioneering solutions. By deploying AI and Machine learning, firms have been able to make maximum use of consumer data. They have eased and personalized the consumer experience in a cost-effective manner. Many analysts state that the value derived from the data will put these FinTech firms at par with the banks. Banks will be pushed from the front end and will devour the ‘leftovers’ of the industry.
AI is enabling better risk assessment, fraud detection, and personalized pricing (based on customers’ geographic location, marital status, etc.) for insurance companies. As self-driving cars become prominent the risk will shift from drivers to the software steering your wheel. The FinTech firms that develop new models to assess these emerging needs will boom. The revolution is galvanizing all the segments of the Insurance industry. The catch-phrase for it is “InsurTech”
The most life-sucking industry is the health industry. The life it prolongs is spent squaring the debt it has generated for us. The whitepaper Fintech for Health the role of FinTech in breaking the health poverty trap. Arogya Finance in India has provided medical loans to the most susceptible people in society.
Probability can solve cancer! Yes.
Watch here – MIT CSAIL Financial Engineering can cure cancer
Financial engineering is a relatively new and lesser-known field that uses mathematics, computer science, statistics, and economics to solve money problems. The application of the field can revolutionize the bond markets. Investing based on sound principles and rational algorithms can help even the most downtrodden to invest their savings and reap returns.
FinTech can create a more ‘equitable’ space in society. The 2009 launch of M-PESA in Kenya, a mobile-based banking system uplifted 2% of Kenyans out of poverty. 96% of Kenyans now use the service. The crime rates dropped as the economy became cashless. Largely out of the system earlier, they are part of it now. Digitization has given dignity to them. Klarna, a Swedish fintech firm provides the Buy-Now-Pay-Later services. Xe.com helps in exchanging currency at a very low cost. Thousands of startups have mushroomed each pioneering a special problem.
http:// SORRY, THERE IS A GLITCH!
“Et Tu, Data?”
Data can be deceptive. The base data can inherit biases. The algorithmic bias in loan approval assessments can affect minority communities. (UC Berkeley/ Mortgage Algorithm Bias )
Almost 3.7 billion people on this planet are offline. This large digital divide can translate into deep financial inequality. The rise of gambling apps masquerading as investing apps can lead to great financial losses for the financially uneducated. A study published in 2019 showed that 100% of Fintech firms suffered from some sort of cybersecurity or privacy breach.
A study published in 2019 showed that 100% of Fintech firms suffered from some sort of cybersecurity or privacy breach. In March 2022, Blockchain company Ronin was hit by a $615 million crypto heist (I bet this is Professor himself)
HEARTTHROB OF THE TOWN – MR. BITCOIN
It is a sin of ignorance not to mention cryptocurrency.
To me, Bitcoin is just a teenager like me with many mood swings. Just look at the chart. It’s a roller-coaster. One day, I was watching the investing videos by jailed investor Martin Shkreli. He was teaching ratios, then the subject of good young Bitcoin came up. He reiterated that dealing in bitcoin is “speculation” and not an “investment”. The reason being it’s a currency.
The other day, while I was browsing the web, I reached “Spiral”- Jack Dorsey’s new initiative. In bold was a declaration on the webpage– “Making Bitcoin more than an investment.” Investment! They want to make bitcoin the ‘native currency of the planet.’ Block Inc is Jack Dorsey’s financial service and digital payment company. (Block is officially building an open bitcoin mining)
This is an ideological bout between the investors and technologists. Investors and economists find no intrinsic value in bitcoins. For technologists, it is an investment.
IS THIS A BUBBLE?
Let’s look at the psychoanalytic literature to decipher investor behavior.
J.M Keynes in his “Greater Fool Theory” stated that “investors priced shares not on what they thought their fundamental value was, but rather on what they thought everyone else thought their value was”. In easy terms, a fool pays an overprice for an asset thinking that a “greater fool” will buy from him and he can make a profit.
Many economists think that the exponential rise of cryptocurrency is an example of this theory. A recent study showed the appeal of cryptocurrency among people with dark tetrad personalities. Dark personalities and Bitcoin (The results of this study are not applied to all. Perhaps, some are just “greater fools”.)
The emotional trajectory during various cycles (namely Excitement, Domination, Euphoria, Panic, and Blame) gives great insights into the investor behavior during the bubble. It is seen in the dot-com bubble of Y2K, the Tulip mania of the 17th century, to name a few.
Bitcoin is backed by technologists. They are optimistic and driven to make it the universal currency.
In 2021, the Fintech sector registered a record investment of $210 billion. The pandemic has accelerated the use of online payment mechanisms.
India and China are top in the fintech adoption rates. Today’s Fintech revolution is powered by the developing world. Sequoia Capital, an American VC firm has made a significant investment in Indian startups. The descent of BharatPe and Paytm shows a different side. In these fiercely competitive times, firms that provide workable solutions will stand still. A beverage company named Long Island Iced Tea Corp changed its name to Long Blockchain Corp and its share jumped 200%. Anything with the word “Tech” attached to it creates a frenzy in the market.
The important tasks in these periods would be of the regulators. Unregulated credits may harm the public. Effective policy measures will help in the protection of public finance as well as propel innovation. The innovative startups are here to stay.
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” This is the first line from Satoshi Nakamoto’s white paper.
However, Fintech apps are heavily dependent on traditional banks.
The future is not about challenging the ‘potential’ of technology but rather challenging the ‘problems.’ An idea is a nickel for tomorrow.
All Hail Time!