Fintech is a word tossed around often in the financial industry. On occasion it's good to remind ourselves exactly what we’re dealing with when it comes to fintech and its meaning on the work we’re doing and what it all means in a bigger sense of disruption.
If you look at how retail has been disrupted by online shopping — and even how pizza ordering and delivery has gone over to the tech side — you’ll see the effects of financial technology at work.
But how much more disruptive is fintech to the financial industry?
Here are three things you should know — not just about how disruptive it's already been, but how much more change it's likely to bring, courtesy of a report in Computer World.
First thing to know: Fintech has already undergone an extraordinary transformation.
Originally fintech was something hidden away in a back office as more of a data center processing platform.
Now the technology has emerged to become much more visible — although in a somewhat transparent way — as “the basis for end-to-end processing of transactions over the internet via cloud services.”
Fintech, in the form of such payment services as PayPal and ApplePay, has made it possible for people to buy just about anything with the entry of a code online or the swipe of a card at a gas pump or a barista's register.
But now people's expectations of fintech include providing almost-instant mortgage approvals or handling the financial end of buying stocks or making contributions to their retirement plans on their smartphones — without the intervention of a human.
In fact, fintech's influence and disruptive force now are able to “reshape commerce, payments, investment, asset management, insurance, clearance and settlement of securities and even money itself with cryptocurrencies such as Bitcoin,” the report said.
Deloitte Consulting said in the report that the companies providing fintech have defined the direction, shape and pace of change across almost every financial services subsector. Eric Piscini, a principal in the technology and banking practices at Deloitte Consulting, is quoted in the report saying, “When you think about banks today, they’re really technology companies if you look at where they spend their money.”
Second thing to know: Fintech has become essential in ways that couldn't be imagined only a few short years ago.
So are financial institutions spending that money well? That depends.
But one way or another, they have to devote resources to fintech if they’re to survive. “Customers now expect seamless digital onboarding, rapid loan approvals and free person-to-person payments — all innovations that fintechs made popular,” a recent industry report by Deloitte and the World Economic Forum said.
The report added, “And while they may not dominate the industry today, fintechs have succeeded as both standalone businesses and vital links in the financial services value chain.”
Financial institutions find themselves spending on fintech because it's now more cost-effective (and, in fact, easier) to use it to meet customer demands for a better digital experience, as well as meet business needs.
Those needs include analytics that predict trends, customized financial products based on those analytics, artificial intelligence and “[t]ransaction process improvement and middleware, both of which remain expensive,” Computer World said, adding, “This is pushing traditional financial services firms to consider partnerships with marketplace lenders for fintech solutions that don't require a full infrastructure overhaul.”
Third thing to know: More disruption lies ahead.
Some of that disruption will come from technology itself. While the “explosion of ecommerce has created a healthy ecosystem of start-up tech suppliers for the financial services, retail and other industries,” the report pointed out, that's meant a proliferation of vendors — and that can mean both opportunity and danger.
The report pointed out that over the last 10 years the fintech supplier ecosystem has grown exponentially — from perhaps 10 key players, according to Deloitte's Piscini, to more than 10,000 companies.
And in this era of hacking and cybercrime, all of that outsourcing — combined with the regulatory environment — means that the financial industry, and indeed any industry so reliant on fintech, will have to be on its toes to protect and manage its technology ecosystem. That's another new category — ecosystem relationship management.
Piscini said in the report, “The way you manage 10,000 suppliers is completely different from the way you managed 10 technology partners. That's a big challenge for large organizations: How do you manage your 10,000-supplier ecosystem versus the 10 relationships you had before. For them, it's not as much about technology but what kind of innovation can I source and how do I do that in an ecosystem that's much more fragmented than it used to be?”
Add to this mix the reentry of financial organizations back into providing technology such as the Zelle person-to-person payments service, from Early Warning Services LLC. — a technology provider owned by Bank of America, BB&T, Capital One, JPMorgan Chase and Wells Fargo. Zelle will allow 86 million U.S. mobile banking customers to send and receive payments as an alternative to cash and checks.
Piscini concluded, “So now the fintech [firms], who were disrupting the banking industry, are now being disrupted by the banking industry, which is an interesting spin of events. It's a good example of the disruptors being disrupted.”