What is our Fintech future? The entire world is going through an endless series of technological disruptions. From materials science to computing power to the dawn of AI and true automation. Everywhere you look things are changing faster than ever.
This is just as true for one of the oldest trades – finance. For as long as there has been money, there have been technologies that let us make use of money in new and interesting ways. When people figured out that you could send transaction information via undersea telegraph cables, it transformed global finance and business. Likewise, the invention of the abacus had a major impact on the speed of trade and the sorts of insights merchants could get when planning their business operations. In fact, the earliest clay tablet writings that modern humans have translated turned out to be related to trade. Which could very well mean that clay tablets were an early form of Fintech?
Today we have massive Fintech disrupters such as cryptocurrency and Robo-advisors. Which makes it feel as if there couldn’t possibly be anything even bigger on the horizon. However, just as with this latest industrial revolution, things in the world of Fintech are just getting started. In a decade or two, the world of finance might be as alien to the people of today as the computer age would be to someone from the Middle Ages. No one knows what the future will be like, but we can try and make a few semi-educated guesses.
A Digital Value Chain
When you buy something from the shelf at your local supermarket, you represent the final link in a long value chain. It all started with raw materials and other resources and along the line, multiple entities add their contribution to the product on the way to reaching its final form.
Fintech is already changing the way value chains look and work, but in the future, it may lead to radical compression and divergence as well. Many of the players on traditional value chains may be replaced with automated equivalents. Alternatively, some roles in the value chain may become completely redundant.
Imagine a future where factories are automated, producing on-demand mass-customized products, perfectly coordinated with procurement systems that can predict when and where certain products will be needed. Fintech solutions will be used to minimize costs, time and wastage. The ultimate results should be cheaper, better products and services. At the same time, I expect the value chain itself to become more decentralized and democratizes. With decentralized regulation becoming the norm and centralized government regulation taking a back seat. This should reduce the cost of governance, decreasing the economic drain of central government control.
Everyone Getting Into Financial Services
Becoming a financial services provider today is a pretty daunting prospect. Apart from the massive amounts of capital you need and the tough regulatory framework, it takes quite a bit of technological savvy.
Whether you’re starting an investment firm or a bank, you need to develop software, often from scratch, that will limit risk and efficiently support your business. Building these systems is one of the main gatekeeping factors that prevent more enterprises from entering the financial services market.
However, disruptive Fintech is changing all of that. In the future, a company might be able to buy software products off the shelf that will allow them to provide things like insurance or banking services. Crucially, new Fintech makes it possible for companies who aren’t financial institutions to provide financial services without all that massive investment usually required. While massive car companies like Ford already offer their own vehicle financing, Fintech will allow smaller outfits to do the same thing. Technologies such as blockchain-based smart contracts and so-called “RegTech” will ensure neutral, fair dealing without the need for constant scrutiny from centralized systems.
If more players can enter the financial services market, it would mean significantly more competition. Which should lead to a much more consumer-friendly market.
Lots and Lots of Automation
Few modern industries have benefited from automation as much as finance. Think about the humble ATM. A machine that lets you draw cash, statements or make deposits 24/7. It never gets tired and, once the initial costs are paid off, becomes a profit-generating machine for the bank.
The same goes for online banking. With a reduced need to actually visit a bank, banks can scale down the size and number of branches, At the same time, banking mainframes that keep perfect track of transactions and precisely calculate interest and payments for things like loans drastically reduce the cost of doing business. They also massively expand how much business can be done!
In the future, we can almost certainly expect Fintech to push automation in finance to new levels. As it stands today, automated software algorithms are already doing formerly human tasks such as giving investment advice and trading stocks at lightning speeds.
The real disruption will come from automation in finance intersecting with automation in other industries.
A Post-money Future
While the debate about its likelihood rages on, one vision of the future has no money at all! The so-called “post-scarcity” economy is one where just about everything is automated, which means there’s virtually no cost to making, well, anything. That’s a radically different type of world than the one we live in now. Which values something mainly by how scarce it is and how much demand there is for it.
So, if you have no money, how could you have Fintech? The thing is, Fintech is certainly driving many of the developments that those who believe in a post-money world think will get us there. So from one point of view, the future of Fintech is to make Fintech itself redundant. However, the actual technologies that drive Fintech will be crucial to a post-money society. After all, the actual resources still need to be allocated and managed at a scale where humans would find it impossible.