By Josh Deems
The saga of finance technology, dubbed “fintech,” is on a delayed start compared to other industries. When the proverbial innovation alarm clock rang around 2004, a digital revolution ignited media,telecom, retail, and other nimble segments into transformation. New ideas, technologies, and companies emerged and became entrenched in our daily lives. In the meantime, financial services hit the snooze button… but why?
Innovation in finance has happened before
In the 1950’s, the invention of the credit card was thought to render physical cash obsolete. By the 1960’s, ATMs appeared, threatening the existence of live tellers and bank branches. Starting in the 1970s, stock brokers ditched phone and paper based trades for electronic systems. From 1998 on, consumers and retailers began transacting for goods and services through linked-bank accounts via the online payments system, PayPal.
Major advancements in banking technology have happened every decade since the end of the Second World War, but none harnessing the disruptive power of the revolution we’re facing today.
Fast forward to 2008. New banking services materialized again, this time driven by the millennial thirst for digitization, the anti-establishment distrust of arcane banking processes, and the chutzpah of start-
ups and investors. Concepts such as peer-to-peer lending, digital wealth management, and the first fully electronic currency, Bitcoin, became the focal point of innovation. The theme shifted to the ‘unbundling’ of core banking services often thought as too large, too complex, and too regulated to face disruption.
<<Learn more about the MS in Digital Innovation for FinTech at Brandeis>>
Overview of new services
Highlighted below are two of the more prominent technologies involved in the paradigm shift of the banking industry. Blockchain, the distributed ledger technology and buzzword associated with Bitcoin, and robo-advisors, or digital wealth platforms changing the way we manage personal portfolios.
- What is it? Distributed, immutable, and fully secure database technology. Underlying engine of bitcoin, and supporting technology for peer-to-peer payments worldwide.
- Key Players Open source blockchain providers (Ethereum, Hyperledger); enterprise blockchain companies (Chain, itBit, Symbiont); financial services consortium (R3, Post Trade Distributed Ledger Group); global payments (Ripple); bitcoin-enabled services (Coinbase, Bitfinex)
- Potential Impact
- Send payments across the globe in seconds (remember Western Union, anyone?)
- Tokenize and track the movement of assets across the world’s financial markets
- Shared ledgers and asset records across regulators, buy-side, sell-side, and custodians
- Immutable history of every financial institution’s transactions
- Digitization of fiat currency (Bank of England is experimenting with this)
- Automated compliance and settlement processes
- What is it? Umbrella term for digital wealth management advice. Covers anything from fully-automated and algorithm-based portfolio generation to digital client engagement tools used by human wealth advisors.
- Key Players Institutional (Schwab, Fidelity, Vanguard, BlackRock); Standalone Robo’s (Betterment, Wealthfront, SigFig, LearnVest)
- Potential Impact
- For consumers, cheaper investment advice, diversified portfolio with lower fees through ETF-based offerings, access to features (tax-loss harvesting and portfolio rebalancing) formerly only offered by professional managers to high net worth individuals
- For advisors, broaden scope of managed portfolios beyond high net worth individuals and increase AUM, especially by engaging and targeting millennials. Enhanced market analytics and insights to provide clients.
How to stay ahead
From behemoth banks to lean start-ups, the appetite for seasoned bankers, savvy coders, and entrepreneurial-minded individuals who can bridge the tech and finance gaps is growing. According to LinkedIn data from September 16, 2016, there are over 450 fintech job recommendations between New York, San Francisco, and Boston, and over 650 in London. And these figures ignore the opportunities unlocked by starting your own fintech.
If you’re interested in learning more, a great place to start is the MS in Science for Digital Innovation offered by Brandeis University. The program condenses the fintech ecosystem, and blends the finance and technology skillsets required to build your own personal fintech toolkit. And the secret sauce? The program is taught by experienced professionals who are engaged in the academic, finance, and technology communities.
The finance digital revolution is upon us, and our economy is becoming increasingly mobile and on-demand. Become an active participant in the movement and take the opportunity to learn new topics, network with like-minded individuals, and explore how companies are changing the way banking is conducted worldwide. Soon, you will become the face of the fintech revolution as well.
Josh Deems is an AVP and business strategist at State Street Corporation’s Emerging Technologies Center. Prior to joining State Street, Josh was a management consultant, focusing on operating model improvement and digital experience for asset managers. Josh holds a Bachelors of Business Administration from the George Washington University with a concentration in finance.