Flip through the latest issue of Gulf Weekly.
Crisis is often the mother of innovation. That can definitely be said for the last decade as the post-financial crisis world of 2009 took a long hard look at some of the financial products and services that have reshaped day-to-day life and interactions.
Many of the middle managers who lost their jobs in the financial crisis started new young startups or joined technology behemoths, seeking to solve problems that frustrated them in an industry known for its fat-cat like tendencies.
As we start a new decade, let’s take a quick look at five FinTech applications that have shifted our offline and online lives.
Digital Payments: 20 years ago PayPal and WorldPay kicked off the first wave of fintech making it easier for consumers and merchants to do business together on the internet. In the last decade digital payments has raced ahead thanks to RFID and mobile apps and this growing market expected to be worth $2 trillion by 2025.
M-Pesa is the poster child for mobile payments and deposits in Africa, has 17 million customers in Kenya and has expanded to South Africa, India and Eastern Europe. The Nordics have Swish (Nordea) and VIPPS (DnB) that allow peer to peer money transfers between consumers and to businesses, popular apps with high consumer adoption rates, delivered by incumbents. In Bahrain, Benefit Pay, Bwallet and stc Pay allow near-instant transfers for fractional transaction costs.
Alternative Lending: P2P Lending is an early fintech play that has focused the globally fragmented lending market. Estimated at over $200 billion P2P lending grew substantially following the financial crisis when big banks were not lending. P2P lenders often deploy more sophisticated data driven credit models than traditional banks and have much lower operating costs with no branches.
Blockchain and Distributed Ledger Technologies: Love or hate bitcoin and the blockchain, Satoshi has helped to change the world by combining two technologies that have been with us for over 40 years: distributed data storage and cryptography, into new innovative applications and use cases whilst taking on the fractional reserve banking system with a new digital currency not controlled by a central authority.
While the first generation of this technology is energy inefficient and slow relative to the traditional transactional payment system, it is highly innovative, has many practical use cases and newer generations are improving performance. Forecasts that this sector will cross the $25 billion mark by 2025 seem grossly inadequate.
Blockchain is also leading the sustainable finance world in areas such as impact coins, refugee crisis, migrant workers, and financial inclusion. Blockchain for green and blue bonds is positioned to take off, due to the efficiency of issuing and cost of administration. This follows blockchain bonds launched by the World Bank and the Commonwealth Bank of Australia.
Low Cost Stock Trading and Investments: Whilst Robo Advisors have not lived up to the expectations of gaining a large share of the investment market, they have delivered technological solutions for investing in stocks and funds that is now being deployed across the market from challenger banks to larger wealth managers.
Robo Advisors in the US include Betterment, Wealthfront and Robinhood, the latter leading on commission free investing. In Europe Scaleable Capital is a Blackrock backed quant and tech team partnering with big banks to distribute investments. Nutmeg, the U.K.’s Robo poster child attracted investment from Goldman Sachs in their 2019 funding round leading to rumors of an investment account offering to accompany Marcus.
Offering free share trading in history’s longest secular bull market is a winner. Offering a technology proposition for customers to self-help their way to a risk adjusted passive investment plan has been largely positive, though surveys indicate many people would still appreciate (human) advice when it comes to investments.
Innovative Financial Services Regulators: Following the financial crisis, the Financial Conduct Authority (FCA) in the UK was given a competition mandate. After the failure of two of the four universal banks in the UK serving 80 percent of the market, the government wanted to promote greater competition in financial services.
This heralded a new era of regulatory innovation, led by Chris Woolard, the FCAs strategy and competition director, started with the (fintech) Innovation Hub and the Regulatory Sandbox. Global financial services regulators were quick to copy this playbook, with MAS in Singapore and ADGM in Abu Dhabi delivering a range of regulatory tools and innovations.
The Global Financial Innovation Network (GFIN), formally launched in January 2019, is a consortium of 50 regulators collaborating on fintech innovation and now includes the U.S. SEC and CFTC. Its aims to produce a global sandbox to allow industry to focus on cross border multi-jurisdictional innovations and is eagerly awaited by industry.
