FinTech is a term commonly used within the banking, finance, and technologies industries to describe the literal business of the companies that develop software, run networks, and integrate systems in banking, payments, trading, and beyond. It’s a large and lucrative sector—and in a literal sense, the earliest business to become automated through computing technologies.
These days, however, financial technology—often designated with the less formal capitalization as “fintech”—has taken on the context of the digital disruptors, from music to media to transportation. Indeed, the narrative of mobile payments and banking since at least 2010 has turned on the laggard banking industry getting their comeuppance from more nimble digital innovators.
Leaving that question aside, the new interest in FinTech technologies and investments tends to focus on digital startups. One of the better attempts to focus FinTech in this manner comes from Alexander Pease of Union Square Ventures, New York, in a short presentation called Disaggregation of a Bank.
Pease breaks down the functions of a bank and maps them to digital startups, all of which are looking to for a part of the business conducted by a bank, the technology provided by traditional FinTech providers, or ways to integrate existing and legacy systems with IP-based networks.
London-based banking Chris Skinner writes in a blog post “What is fintech?”, in which he describes the two FinTech poles as follows:
- Traditional fintech as “facilitators” with larger incumbent technology firms supporting the financial services sector; and
- Emergent fintech as “disruptors” with small innovative firms disintermediating incumbent financial services with new technology.
The key distinguishing factor, which we described as digital FinTech, is that Emergent FinTech “builds a new world of finance using a digital core that is IP-enabled,” Skinner writes. “FinTech is a new market. It is 21st century finance. It is the new form of banking, and is related but very different to the old form. Some of the old form players will metamorphose into these new digital fintech players. Some, not all. Some of the new players will take over the markets of the old incumbents. Some, not all.”
In this industry briefing report, we will use “FinTech” throughout to refer to the industry overall all and, specifically, to Traditional FinTech, we will use “digital FinTech” to refer to Emergent FinTech, whether referring to small innovative startups or large nonfinancial software firms like Apple.
This is not merely an exercise in grammar and punctuation. It’s a way of describing and designating the current stage of evolution of bureaucratic control, business management, and commerce processes: from centralized manual and paper-intensive processes; to centralized MIS and electronic processes; to decentralized digital and distributed network-based processes.