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What’s the Deal with FinTech?


These days if you read anything about bitcoin or blockchain technology, the term ‘FinTech’ is thrown around as the “next big thing.

Banks and financial institutions are falling over themselves to create either internal “skunkworks” projects or combining with each other to form a consortium to take advantage of “fintech” opportunities.

So, what’s the deal with “FinTech”?

The definition of “FinTech” according to Wikipedia is “FinTech refers to new solutions which demonstrate an incremental or radical / disruptive innovation development of applications, processes, products or business models in the financial services industry.”

The ability to implement a radical and disruptive innovation into any existing system is an attractive goal for entrepreneurs and developers, not matter what the system.  The ability, however, to shake up the monetary and financial systems, which is the backbone of the world economy, is even more tantalizing.

Students and colleges are jumping into the FinTech fold as schools like Wharton are creating what they call, “the first student-led FinTech initiative”.

Firms like Accenture are holding competitions to find the next great innovation in “FinTech.”   Additionally, Accenture released a report that the growth of “FinTech” investments ventures had tripled from 2013 to over $12 billion in 2014, with the United States capturing most of that.

At the end of 2015, Forbes announced their list of the “Fintech 50”, which highlights those companies and organizations implementing the most compelling “FinTech” solutions.

When you look at examples cited for “FinTech”, they include applications such as making the transfer of funds across borders easier, creating alternative financing and funding options through things such as crowdsourcing, implementing alternative currencies for purposes ranging from games to the “attention economy”, payment programs such as “Apple Pay” and improving the abilities for banks to monitor, control and speed up their abilities to disperse, collect and utilize all forms of financial instruments.

There have always been efforts by financial firms and entrepreneurs to improve the underlying technologies associated with the financial systems.  People hold up the Bloomberg terminal, improvements in credit card processing including new chip technologies and robo-advisers for investors as examples of how these solutions have disrupted current financial technologies.

However, what has led to the recent ramp-up in focus, development and funding related to “FinTech” has less to do with an ongoing progression towards improvement and more to do with the reality that a major disruptor to the current financial systems exists and is growing in leaps and bounds in acceptance and capabilities.

That disruptor is bitcoin and blockchain technology.

Bitcoin is the elephant in the room for all “FinTech” discussions by banks.  When financial firms look under the hood of bitcoin and see the effectiveness and power of the underlying blockchain technology, they stand back in awe and realize that its decentralized nature is not only a threat to the existing systems, but recognize that if it can be harnessed, it can greatly improve the entire financial eco-system.

As a writer in Banking Technology noted, “From a financial industry perspective blockchain promises a massive disruption to the world of back office systems and ledgers. The enthusiasm in the banks is palpable; the technology offers a potential to eliminate as much as $20 billion of costs from the financial sector. This will largely come from eliminating complex processes and systems that govern the opaque payments and settlement systems.”

Blythe Masters, who was an executive at JP Morgan and just received over $50 million from 13 financial firms, including BNP Paribas, Citibank, JP Morgan, and PNC Financial Services for her blockchain based FinTech startup, said “The blockchain is the financial challenge of our time. It is going to change the way that our financial world operates.”

For many in the bitcoin world, they chuckle at the “establishment’s embrace” of a non traditional currency and its underlying technology being considered by that establishment as the future. For they recognize that at its most basic level, the real focus of FinTech is simply on the integration of blockchain technology into the existing financial systems, and identifying a way that businesses can profit by it.

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