Fintech used to be a back-office support function, now it’s defining an industry
Future of Fintech-Financial technology used to be the back-office support function for bankers and traders. Venture capitalists barely invested in the sector. Public companies in the industry were rarely compared to the high-growth darlings of Silicon Valley. But all of this has changed. Over the last decade, private venture capital skyrocketed and the share of investment dollars going into fintech increased from 5% to nearly 20% — a level equal to the fair share of Gross Domestic Product attributed to the financial industry. Fintech has found its place in the innovation economy.
As fintech grew, it became increasingly difficult to tell the hype from reality. Over the last several years, chatbots and artificial intelligence, blockchain and crypto assets, roboadvisors and neobanks, and myriad other digitization symptoms have become buzzwords in the trade media. Large global banks spun up corporate venture arms and digital incubators, investing in, acquiring, or copying solutions from emerging companies. Globally, Eastern technology companies launched messaging super-apps with hundreds of millions of users and embedded financial services, outcompeting the potential of Western-regulated jurisdictions. American tech firms dug in deep, too, finding ways to provide financial products without touching the third rail of regulation. Here we are in 2019 – trying to find signal amongst all this noise.
From Product to Customer
Let’s set some things straight. First, finance is much simpler than most people make it out to be. There are factories which make products – banks holding deposits with interest rates, or investment managers making investment funds, or lenders and insurers underwriting some customer risk with capital. Then, there are stores that sell the product – bank branches, financial advisors, insurance salespeople, or lending officers. Between these two extremes are complex value chains of humans, balance sheets, and software, woven together by regulation and industry habits. But at the end of the day, clients visit a store and buy some financial product.
Digitization is happening all along the value chain. In the front office, consumer relationships are moving out of physical conversations and into cell phones. Symptoms include European neobanks like Revolut, American roboadvisors like Betterment, or Asian insurtechs like Ping An. Raw automation is being applied to the process of assessing, onboarding, and serving the customer. More speculative interfaces use machine learning and natural language processing to generate chat and speech, instead of letting people interact with a live agent.