Fintech… Welcome to the world of tomorrow!

By G. Kevin Mathis, Fall 2018 IAC Student Intern

First, what is Fintech? Defining Fintech is difficult because currently a consensus definition of Fintech is nonexistent.  Patrick Schueffel, a professor of Finance with the Institute of Finance, School of Management Fribourg in Fribourg Switzerland wrote an article, Taming the Beast: A Scientific Definition of Fintech, in which he aimed to define Fintech.

Schueffel reviewed 200 scholarly articles covering a span of over 40 years that referenced the term Fintech and extracted thirteen peer-reviewed definitions of Fintech.  Schueffel combined the definitions to form a consensus definition for Fintech.  According to Schueffel, Fintech means applying technology to improve financial activities.  So, Fintech includes most of what think about in terms of modern day financial activities, such as ATMs, Banking online, and Cryptocurrencies.  Theses ABCs of financial activities were once aspirations, but thanks to Fintech, they are now are now the essentials to financial activity.

Technology has been applied to and improved just about every sector of our lives. Smart Technology and the Internet of Things has innovated so many areas of our lives.  Technological advances in the communications sector led to smartphones that allows us to connect us with others around the country and the globe with social media.  The continuing evolution of automotive technology assists with driving making roads safer and leading us to autonomous vehicles that do the driving for us.  Presently, technology is even building the future infrastructure of cities/communities.

However, those same technologies have also presented many challenges.  Studies show that the ability to connect with others via social media can result in symptoms and consequences traditionally associated with substance-related addictions.  Autonomous vehicles are purportedly safer than human drivers because the technology (i.e. social media) does not distract an autonomous vehicle.  Despite being immune to distractions, autonomous vehicles are still incapable of operating in certain road and weather conditions, so a human operator must monitor the autonomous vehicle to ensure that it operates safely and properly.  According to the Harvard Business Review, smart cities are prone to hacking and more needs to be done to prevent intrusion.

Fintech is better than those other technologies, right?  Fintech is applying technology to the financial sector, innovating banking and finance in a manner that is improving our lives.  We are familiar with Fintech, it makes banking more convenient and less complicated, plus transactions are now more secure.  For example, ATMs were developed over years and now we can conduct banking transactions without the need of brick and mortar buildings.  This saves customers time because they can transact business with our bank whenever it is convenient, and the banks reduce their overhead expenses because they do not have to open additional branches and extend their operating hours.  Now the debit cards we use at ATMs are doubly secure thanks to PIN codes and EMV chip encryption.  ATMs only brought positive change to financial activities without the problems of the aforementioned technological advances (smartphones, autonomous vehicles, and smart infrastructure).  Wrong, ATMs present several disadvantages, such as card cloning fraud, skimming and PIN cracking, machine/banking institution service outages, cash availability shortages, robberies, lack of availability in rural areas, withdrawal limitations, and worker (bank tellers) displacement.

Fintech means applying technology to improve financial activities.  We should care about Fintech and get a better understanding of it because, as with all technology, it can create both improvements and challenges.