Fintech - A Combination of Finance and Technology
When writing response to the question about technological impact on my daily life, I came up with the change in our payment method. Then I tried to dig deeper about the e-wallet, surprisingly, it turned out that the e-payment belonged to a much bigger concept — Fintech, which is a portmanteau of financial technology. As a student majoring in Quantitative Finance, I am fascinated by this Fintech idea and I will share my understanding and findings about it in this post including the introduction of Fintech, analysis of its key drivers, as well as accompanying issues and concerns.
Introduction of Fintech
“Broadly speaking, Fintech (financial technology) is anywhere technology is applied in financial services or used to help companies manage the financial aspects of their business, including new software and applications, processes and business models.”
More specifically, the four main pillars for the current Fintech market is its applications on payment, lending, wealth management and insurance. Similar to the impact of technology on other industries, the combination of technology and financial services has brought to light the possibility of disruptors in finance area. The influence of PayPal on mode of payment is like Uber on transportation and Airbnb on holiday accommodation. Besides payment, the switching from traditional offline lending from banks to P2P online lending and the emerging supply chain financing are implications of Fintech on how we lend money. Moreover, more start-ups are established targeting at the opportunities in providing financial services to ordinary people. For example, Nutmeg offers online investment management with very low requirement on initial investment and ZhongAn, an Insurtech company, sells innovative insurance products such as freight insurance and mobile screen insurance with the tremendous consumer base of e-commerce in China.
Threatened by the springing out of Fintech companies, the traditional banks are also taking actions to adapt to the new trends. Most banks have offered digital banking services on websites or through mobile applications.
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Key drivers and positive impacts.
One of the most fundamental drivers for the prosperity of Fintech is the unmet financial needs for current market. According to the World Bank, there are estimated 2 billion adults without a bank account and access to the formal financial services. In particular, the unbanked population percentage in the emerging Asia market is more than 50% in 2015. Although the access to banking may not be a serious problem in the developed countries, inefficiency of current financial market still exists due to the high agency cost paid to financial intermediaries, which has remained at a level of 2 % in the U.S., U.K., Germany, and France for many years. To address the gap between demand and supply, Fintech companies are providing mobile and online financial services, which possess the attractive characteristics including ease of setting up an account, less requirement for the initial assets, more favorable fees and rates, satisfying online experience and access to new products and services. Therefore, they serve as complementary business model to the ones of traditional bank and insurance companies and increase global financial inclusion.
In addition to the insufficiency of financial services, changing customer behavior plays a role in the process of Fintech development as well. Online penetration rate is 95% in North America and 85% in Europe by the end of 2017, from which we can say that the enormous number of online population is a great advantage for Fintech industry whose target customers are exactly the people purchasing financial products online. Moreover, Gen-Y and millennial are more like Digital Natives other than Digital Immigrants as discussed in Topic E. They tend to increasingly embrace the new technology in varied aspects of lives, to take more financial risks and demand more individualized services and real-time offerings, to be influenced less by brand, heritage, or longevity of traditional incumbents. These trends of customer behavior are supportive evidence for the booming Fintech industry and the demands generated from the changing behavior can be fulfilled by successful Fintech companies.
Issues and concerns:
“Everything that happens with artificial intelligence, robotics and natural language — all of that is going to make processes easier, is going to change the back office” said former Citigroup CEO Vikram Pandit.
Like applications in any other areas, the utilization of technology in finance spurs the concern in loss of jobs. Despite the rise in demand of tech talent, more people are faced the risk of being fired because of the decrease in bank branches and automation of operating process. Predicted by Citigroup, 30 per cent of jobs will be replaced by robotics in the next five years, mainly the roles in back offices. And within European and American banks, there could be 1.7 million jobs cut between 2015 to 2025.
Another major concern related to Fintech lies in the lack of surveillance. It is evolving much faster than the regulations. And many governments are adopting encouraging policies with lower entries to foster its development, while malicious ones can exploit an advantage to conduct fraud and deception. For example, the “Ezubao” was known as an online peer-to-peer lending platform in mainland China, with total trading volume of around 50 billion RMB ($7.61 billion), and it turned out to be a large well-organized fraud in the end of 2015 with more than 900,000 investors involved. Urged by this event, the Chinese Government picked up the pace to improve the regulatory mechanism and has established a few restrictions in Fintech activities such as the move to eliminate cryptocurrency. Apart from the effort from the government regulations, as smart digital citizens, we should never languish our vigilance of deceptive activities and protect our data privacy as best as we can.
Moreover, the ethical argument of robot or artificial intelligence has never come to a conclusion. Robots are catching up with human rapidly. For the time being, they can learn themselves through machine learning already, is it far behind for them to takes to have emotions? Thinking one step further, what rules should be created to ensure their ethical behavior? Will they have rights? Are they equal to humans?
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Fintech is changing and will continue to change our ways to deal with money. What I want to emphasize is that, as we enjoy the benefit and convenience brought by Fintech, more attention should be paid on the potential issues such as loss of job, step-up frauds as well as ethical concerns about robots.
Being a student of business school, I am always latching on to the lastest trend in all industries, which usually indicates investment opportunites. Having heard thousands of times that ‘technology is the future’, I took this course and hoped that I would have a better understanding of how digital technology has changed our lives and be able to identify the most potential digital applications. Much to my surprise, even from the beginning of the course, it revealed so many aspects regarding to digital technology that I had ignored before. I am extremely willing to share my harvest from this course.
One of the most obvious improvements showed in my critical thinking ability. Before this course, hardly had I thought about the side effects of digital technology. Although I might be aware of the risk of leakage of personal privacy, I didn’t realize that the latent ethical problems were that severe and it did happen ( e.g. Ashley Madison in Topic E: The individual). In addition to cybersecurity, digital technology has also brought about the concerns about net neutrality, losing of jobs, addiction to internet as well as the exclusion of people with diabilities or less access to technology. When discussing whether our future will be Utopian or Distopian in Topic D, I came up with a film WALL·E which exhibited an extreme condition when robots took charge of most duties and people were too lazy to stand up, with no real-world communication at all, and were lost in virtual world projected by a pair of high-tech glasses. Now, I hold a view that digital technology is actually a double-edged sword to our society and should be handled with caution.
Besides the excellent content of each topic, there were many useful websites which I had never heard before introduced during the lectures. Among all of them, ‘Mentimeter’ is my favourate. It can create wordcloud based on the input from the audience or bar charts to present the result of questionnaire in a clear manner. Each time the lecturer using ‘Mentimeter’, I felt myself more engaged and concerntrated. Therefore, I think it is very effective in terms of increasing interaction with the audience and capturing their attention. And I am going to take advantage of it in my future presentations. Another website which had impressed me a lot is called ‘Padlet’. It functions as online blackboards displaying posts from several users. Compared with Google Drive or other document sharing softwares, it is fascinating in embedding websites links and its layout and I am sure I will use it very frequently with my teammates in other group projects.
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To conclude, Digital Society gave me much more than I had expected. It will definitely help me a lot in my future career. I can use Pecha Kucha to present my idea to managers with eye-catching pictures, apply ‘Mentimeter’ or ‘Padlet’ to increase working efficiency, and utilize critical thinking to address both the positive and negative sides of each business. The learning process was pleasant and enjoyable and I have recommended this course to my friends as one you can’t miss!