Do you own a dictionary? Probably not. Even if you do it’s likely to be at least several years old, and it won’t have kept up with the times. It is unlikely to include words like “mansplaining” or “staycation”, even though these words are used by people everyday in the real world.
Imploded by the same forces that have disrupted broader society, the dictionary business is struggling in the digital world. The way we want to do things has changed. We like the choice and speed of online sources, and most of us now get our reference information in this way. Those publishers that have embraced the opportunities the new digital world offers continue to operate, and in some cases thrive. Those that don’t, well don’t.
And that brings us, in a rather roundabout way, to another relatively new word that you won’t find in an old dictionary– fintech. Short for Financial Technology, it refers to a comparatively new and fast-growing sector that is changing the previously staid and increasingly obsolete world of finance. By using new digital technology fintechs are delivering financial services in a way that an increasing number of people want.
Fintechs use technologies such as the internet, blockchain, AI and mobile communications to lower costs and increase the speed and efficiency of financial processes. Mobile banking, robo-advisor investing services, and Bitcoin are examples of financial technologies aimed at improving as well as creating new financial services, while making them more easily accessible to the public. Fintechs may be startups or established firms; forward-looking traditional financial institutions are also adopting fintech solutions to improve their services and maintain their competitiveness.
A sitting duck
Financial services are highly susceptible to disruption by blockchain, AI and the internet because they involve the processing of pure information rather than physical goods. This is similar to the music and publication industries which have undergone massive digital disruption for the same reason.
In particular, blockchain technology can reduce the cost of transactions in financial systems by eliminating the middleman. It has the potential to radically disrupt credit card, bank clearance and settlement, currency and stock trading, loans and credit, public notary, money transfer and financial advisory services.
While finance has been largely protected from digital disruption by complex and country-specific regulations until now, a new wave of startups is increasingly overcoming these barriers to disrupt banking services deemed to be slow, expensive and opaque.
A wide open playing field
Twenty years ago, the financial services sector was staid and traditional, consisting of financial institutions offering conventional services such as bank accounts, investment funds and insurance policies. These institutions are typically large, conservative and slow-moving enterprises employing thousands of employees, and many layers of management running complex systems to accomplish even the most basic tasks.
An example is the movement of money from one place to another. Today such a basic transaction requires several days and often involves five institutions — the sender’s and receiver’s bank, plus two intermediary banks should the first two not have an established relationship, all coordinated by the Society for Worldwide Interbank Financial Communication (SWIFT) which oversees the payment order.
The transaction seldom occurs automatically; 60% of all B2B payments require manual intervention. And of course, all intermediaries take their fee.
A question of trust
This example of one of the most basic of financial transactions is bogged down due to the question of trust. My bank doesn’t necessarily trust your bank, and vice-versa, so each bank has to find a trusted intermediary bank that they trust, and that trusts your bank’s intermediary bank. The whole process has to be overseen and managed by an international payments organisation, SWIFT, to make sure all parties are fulfilling their obligations. The cost of trust is lost time and fees. It is almost unimaginable that in this day and age the most essential of transactions required to pay vendors, service a debt, or send funds to family members requires such a slow, medieval and expensive chain of events.
Robots don’t lie
Just as the internet has disrupted virtually all businesses dealing in the exchange of information, blockchain is disrupting the financial sector by replacing human trust with machine trust. Blockchain is essentially an unalterable, immutable record of transactions visible to all (a ledger), meaning no one has to trust anybody else during the transfer of money. No intermediaries such as a credit card company is required to provide trust where none exists between parties conducting business with each other.
Let’s take the previous example of moving money from one location to another. Current technology requires several days and the involvement of up to 5 intermediaries, all taking a fee. Conducting the same transaction with bitcoin completely streamlines the process; a sender of funds does so directly from his bitcoin account via the internet to the recipient’s bitcoin account hosted on the bitcoin blockchain. The transaction takes place within minutes, and no intermediary is required. Sender and receiver do not have to trust each other, nor even know each other’s identity; exchange of funds takes place between two unique bitcoin addresses, and only a small miner’s fee unrelated to the size of the transaction is deducted. In the end, the transfer is permanently recorded, unalterable, and visible to all.
If this transaction were for a purchase of goods, for order fulfillment, software “smart contracts” are implemented to make sure goods are delivered; payment is not released by the software until the goods are delivered by a blockchain connected logistics provider armed with a barcode reader.
Fintechs can change the world
Imagine if this payment system achieved mass adoption; entire industry sectors would be made obsolete (i.e. Visa, Mastercard, Western Union, Bank Transfer etc.). Businesses large and small around the world could benefit from instantaneous and cheap transfer of money directly between buyers and sellers, be it between corporations, or third world cottage industries selling their textiles to buyers around the world. A whole industry has emerged including crypto exchanges, wallet makers and blockchain logistics providers all over the world to fulfill this vision.
This is just one example. There are thousands of fintech companies each developing a new way of doing something faster, cheaper and more efficiently than it is done today. Ten years from now, we will hardly recognise the way we manage our finances today.
INITIUM: A bank for fintechs
A new breed of bank, INITIUM Group, recognises the enormous opportunities in the fintech sector, especially those firms who are leveraging blockchain technology to reduce the cost of payments, exchange, trading, and remittance, as well as fintechs dealing in promising cryptocurrency services.
Unlike traditional banks who often shun startups that have new, unproven business models, INITIUM will provide the services that budding fintechs need to run their business; corporate accounts, payment clearing, card issuing and acquiring and liquidity services. Advanced services include API integration into client platforms and crypto services such as conversion of crypto into fiat and fiat pay-out to their customers.
With seasoned banking CEO Daniel Spier at its helm, INITIUM is building a bank built from the ground up with the innovative technology and automation required to quickly to meet the needs of pioneering firms in the fintech sector. With a focus on innovative startups, INITIUM will offer corporate banking services with multi-jurisdictional reach across five countries in Europe, the Middle East and Asia.