INTRODUCTION

As technology and digital services continue to ingrain themselves into more aspects of our
lives, the financial sector has not been immune. New technology has given way to new services
and with new services comes disruption of the old. Development of modern information
technology has changed the traditional ways of production and business, during which a new
business mode has emerged. The emergence of technology is due to the world economic
globalization, polarization, motivation of high demand as well as development of computer and
network technologies. It is a process of spread and communication of network technologies in
economy, society and culture. Since electronic commerce has thoroughly changed current
operational means with sufficient usage of limited resources, short business circle period, high
operation efficiency, low cost and good service quality, development of electronic commerce has
brought unprecedented development opportunities to enterprises and world economy. Several of
the key changes that are taking the financial sector by storm as well as the challenges that come
along with them.

FINTECH

Financial technology is a broad, far-encompassing term which primarily refers to banks

and financial institutions looking to make full use of available hardware and software capabilities;
as well as referring to the systems themselves. In the truest sense of the word, the advent of credit
cards in the 1950’s or the rise of ATM’s in the 1960’s was, for their time, a version of Fintech.
Today, the term would be more appropriately used for digital banking technologies such as digital
banks, wallets, block chain tech, and more.

Online budgeting tools, spending tracking, even automated chatbots for customer service are ways
in which Fintech is altering the landscape of financial services. At each level, pain points are being
addressed (i.e. budgeting, customer service) in swift, efficient manners, often making use of
automated technology and machine learning algorithms. In times past, a suspicious charge on your
account may have elicited a phone call from a representative. Now, robocalls (a controversial
tactic) can be made automatically as the transaction itself is being conducted (and in many cases,
declined).These technologies are moving the financial services industry in new directions quickly.
Banks, lenders, credit card companies, and financial planners alike are all hurrying to catch up.
One thing is for certain. Fintech is here to stay, is growing rapidly, branching in numerous
directions, and is not slowing down.

Financial technology is broadly defined as any technological innovation in financial

services. Those engaged in the industry develop new technologies to disrupt traditional financial
markets. Various start-ups have been involved in the process of creating these new technologies,
but many of the world’s top banks including HSBC and Credit Suisse have been developing their
own Fintech ideas as well. Fintech companies utilize technology as widely available as payment
apps to more complex software applications such as artificial intelligence and big data.

Cryptocurrency: A crypto currency is a decentralized digital currency which uses encryption -

the process of converting data into code - to generate units of currency and validate transactions
independent of a central bank or government. Bitcoin and ether are the most common form of
digital currencies. But there are other forms of virtual cash, such as Litecoin, Ripple and Dash.

Bitcoin: A term we are more used to hearing even in mainstream finance is the first and one of the
most prominent cryptocurrencies used by traders in the world of Fintech. It all began when an
unknown person(s), under the pseudonym Satoshi Nakamoto, designed Bitcoin as a peer-to-peer
(P2P) payment network without the need for governance by any central authority. In an
introductory white paper introducing the virtual currency, Nakamoto defined Bitcoin as: “A purely
peer-to-peer version of electronic cash (which) would allow online payments to be sent directly
from one party to another without going through a financial institution.”

Blockchain: Blockchain is a form of distributed ledger technology (DLT). This means that it
maintains records of all Cryptocurrency transactions on a distributed network of computers, but
has no central ledger. It secures the data through encrypted ‘blocks’. Various blockchain experts
believe the technology can provide transparency for a multitude of different industries, not just the
financial services. The original blockchain network was created by bitcoin-founder Nakamoto to
serve as the public ledger for all bitcoin transactions

Ethereum: Ethereum is another type of blockchain network. It was proposed by a 19-year-old

Russian-Canadian programmer, Vitalik Buterin, in 2013. Ethereum differs to the original
blockchain in that it is designed for people to build decentralized applications. These are
applications which allow users to interact with each other directly rather than having to go through
any middlemen, Buterin said, explaining the project in 2014. Ether is the value token of the
Ethereum blockchain. It is traded on cryptocurrency exchanges.

Regtech: Regulatory technology is technology which helps firms working in the financial services
industry meet financial compliance rules. One of the main priorities of regtech is automating and
digitizing Anti-Money Laundering (AML) rules which aim to reduce illegally obtained income,
and Know Your Customer (KYC) processes which identify and verify the clients of financial
institutions to prevent fraud. The U.K.’s Financial Conduct Authority was the first governmental
regulator to promote the term. Regulators like the FCA are working with regtech firms on a range
of different applications, including AI and machine-learning, to improve the efficiency of
compliance in the financial services and cut costs.

Insurtech: Insurtech is a subset of fintech which relates to the use of technology to simplify and
improve the efficiency of the insurance industry. A report by consulting giant Capgemini and non-
profit insurance industry body Efma last month found that traditional insurance firms are facing
increasing competitive pressure due to the emergence of a number of insurtech start-ups.

Initial coin offering: An initial coin offering (ICO) is a crowdfunding measure for start-ups that
use blockchain. It involves the selling of a start-up’s cryptocurrency units in return for cash. ICOs
are similar to initial public offerings (IPOs), where the shares of a company are sold to investors
for the first time. But ICOs differ to IPOs in that they deal with supporters of a project rather than
investors, making the investment more similar to a crowdfunding experiment. Last month
China banned ICOs over concerns that the practice is not regulated and can be opened up to
fraudsters

Open banking: Open banking refers to an emerging idea in the financial services and fintech
which stipulates that banks should allow third party companies to build applications and services
using the bank’s data. It involves the use of application programming interfaces (APIs) - codes
which allow different financial programs to communicate with each other - to create a connected
network of financial institutions and third party providers (TPPs). Proponents of open
banking believe that an “open API ecosystem” will allow fintech start-ups to develop new
applications such as mobile apps to allow customers greater control over their bank data and
financial decisions.

Roboadvisers: Robo-advisors are platforms that automate investment advice using financial
algorithms. They limit the need for human investment managers, thereby dramatically reducing
the cost of managing a portfolio.

Underbanked: The “unbanked” or “underbanked” are those who do not have access to banks or
mainstream financial services. Various fintech companies have developed products aimed at
addressing this portion of society, providing them with digital-only solutions to open up their
access to the financial services. The Federal Deposit Insurance Corporation (FDIC) estimates that
there are 10 million unbanked or underbanked American households.

Financial inclusion: Financial inclusion refers to fintech solutions that provide more affordable
finance alternatives to disadvantaged and low-income people who, like the
unbanked/underbanked, may have little to no access to mainstream financial services. This is one
of the most important areas for fintech companies that operate in developing markets.

Smart contracts: Smart contracts are computer programs that automatically execute contracts
between buyers and sellers. Smart contracts are often blockchain-based and can save huge amounts
of time and costs involved in transactions which usually require a human to execute them. In
Ethereum for example, the contracts are treated as decentralized scripts stored in the blockchain
network for later execution.

DIGITAL BANKING

It wasn’t too long ago that banks offered incentives for opening an account. Offers of tote
bags and toaster ovens gave way to promises of low fees, no fees, free checking, cash back, and
more. All were predicated on the notion of getting the customer through the door where the 'sale'
could be made. In today’s digital landscape, certain features are not only offered, but they’re also
expected. It would be hard to conceive of a bank or credit card company without an associated
mobile app for customers to use to track expenses, pay bills, and more.
Digital banking is, to quote another economics term borrowed from different circumstances, 'the
new normal'. Beyond simply accessing your account online, digital banks are increasing in both
legitimacy as well as availability. Digital banks exist solely online with no (or few) brick and
mortar locations. Two of the largest in the United States are Ally Bank and Simple Bank. Believe
it or not, both have been around for nearly a decade. However, it wasn’t until 2017 that a major
player, Chase, got involved.

Finn by Chase marks the first foray into the digital-only banking landscape by a major US provider.
No doubt, competitors will be paying close attention to how it performs. There may indeed be a
digital banking revolution on the horizon. Even if Finn is ultimately unsuccessful it will most
certainly not be the last venture by a major financial institution into the digital-only banking sector.
Combined with the increased focus towards mobile banking, even traditional banks are re-thinking
the standard brick and mortar paradigm.

DIGITAL DISRUPTORS
There is no shortage of digital disruptors in Fintech. Payment technologies such as PayPal
took the industry by storm. Others, such as ApplePay and Venmo have followed suit and are
increasingly shifting more transactions to a digital environment.
At the same time, providers such as Kabbage provide small business lending services through an
automated lending platform. Stripe is a payment processor which allows websites to process online
transactions; lowering the barrier of entry for small ecommerce stores and startups alike.
Bypassing the need for expensive processors, lengthy loan procedures, or extensive footwork;
Fintech disruptors come in all shapes and sizes.

AI AND MACHINE LEARNING

There can be little doubt that the world of AI and machine learning will leave an indelible
mark on the financial industry. In fact, it already has. Banks and credit card companies are using
complex algorithms to detect fraudulent activity.
These technologies are being pioneered by several Fintech startups, employed by large
corporations, and benefitting customer service as well as experience. As mentioned earlier,
suspicious activity may at one time elicited a phone call from your bank or insurance company.
Now, Microsoft has introduced an AI program which can detect fraudulent activity (and take
action) in less than two seconds.
Similar technologies also protect mobile banking, login credentials and more. Cybercrime may
have accounted for over $600 billion in losses in 2016. As technologies become more
sophisticated, so too do the methods for circumventing them.
While consumers tend to think of “Fintech” as technologies and companies that make their
financial lives easier; there are also those who seek to make our financial lives safer. Over 200
cyber security startups received VC and corporate funding last year. This year that number should
be even higher. Fraud detection isn’t the only use for AI and machine learning. Complex
algorithms created from enormous amounts of data are providing insights into consumer behavior,
providing real-time investment insights, regulatory compliance, and more.

AN EVOVLING WORKFORCE
New technologies mean new specialties. As such, the workforce for financial institutions
is evolving. According to a LinkedIn Study the top financial jobs being hired in the UK are:
 Investment Banking Analyst
 Software Engineer
 Paraplanner
At the same time, more traditional jobs require different skills in order to provide for customers
such as salespeople, customer service representatives, HR and project managers. Advances in
technology, including AI systems, are creating an environment where these positions are in danger
of becoming outdated unless new skills are developed.
As technology continues to evolve the industry, there will be an increased need for a viable
workforce to meet the rising demands and challenges which develop. At the same time,
transitioning towards digital services and technologies will require the right individuals to be in
place in order to ensure these developments are successful.

QUANTIFYING THE POTENTIAL ECONOMIC AND SOCIAL IMPACT OF DIGITAL

FINANCE

While the benefits of digital finance have been widely noted, this report seeks to determine
just how large the economic impact could be. The report takes a comprehensive approach to
quantifying the economic and social impact of digital finance in emerging economies. The authors
use McKinsey’s proprietary general equilibrium macroeconomic model and detailed inputs from
field research in seven emerging economies that cover a range of geographies and income levels:
Brazil, China, Ethiopia, India, Mexico, Nigeria, and Pakistan.

Some of the main findings of the report include:

 Digital finance has the potential to provide access to financial services for 1.6 billion people
in emerging economies, more than half of them women.
 Widespread adoption and use of digital finance could increase the GDP of all emerging
economies by 6 percent, or USD 3.7 trillion by 2025.
 Digital finance could increase the volume of loans extended to individuals and businesses
by USD 2.1 trillion and allow governments to save USD 110 billion per year by reducing
leakage in spending and tax revenue.

Businesses and government leaders will need to make a concerted effort to secure these potential
benefits. Three building blocks are required: widespread mobile and digital infrastructure, a
dynamic business environment for financial services, and digital finance products that meet the
needs of individuals and small businesses in ways that are superior to the informal financial tools
they use today.

CONCLUSION
There can be little doubt that technology has changed the way we think of the world around
us. The financial industry has, perhaps, been one of the areas most impacted by the digital
revolution. From digital banking to complex systems which monitor and analyze our financial
health and well-being; nearly every aspect of finance has been impacted. As the technology which
guides the industry continues to evolve, one thing can be certain. More change is on the horizon.