Fintech disruption and innovation: Transforming the future of global financial services

In the last few decades, the financial sector has seen a great revolution, where many of its historic players have either disappeared or transformed dramatically. The reasons for this phenomenon range from the evolution of technology infrastructures such as the internet, smartphones, big data, artificial intelligence, mobile and cloud computing technologies, and the rise of new players utilizing these available breakthroughs in technology to rethink the delivery of financial services to embrace a more client-centric focus. The realization of the enormous potential of technology on the ability to connect lenders and borrowers directly anywhere at any time has become a prime attraction for a myriad of new players offering innovative new solutions for a disconnected younger audience. Banks have also moved to partner with fintech innovators to find the right mix of collaboration or competition by investing in startup ideas in the fintech fields.

Fintech or financial technology originally referred to a back office technology used by financial institutions, but the term has evolved to represent the disruption and innovation that is transforming the future of global financial services. The foundations as to how fintech began can be traced to the early 2000s with the emergence of new broad-based technology companies offering major benefits from technology enabled platforms, and with a company founded in 2012 triggering the raising of small unsecured loans using an online marketplace model that began the real changes in the space. However, 2008 saw the true emergence of fintech into the public spotlight with the global financial crisis that began to erode the consumer trust in banks along with a severe liquidity squeeze for sub-prime borrowers. When traditional banks had little or no capital to lend, new non-traditional tech-based marketplace lenders emerged providing needed cash flows to door-step borrowers at the risk of charging much higher interest rates on unsecured loans (Arner et al., 2017; Gozman et al., 2018; Nicholls & De Cock, 2018).

The history of financial services is a journey into the core of the evolution of modern economic life. From the moment business activities moved from basic self-sufficient existence to trading with neighboring communities, people began to specialize their activities. As the community economy developed, factors of production started being combined in a larger scale to allow for greater benefits. Property became more complex, and the movement of capital resources through trade became essential. Complementing these bigger actions, people as a group became allowed to take on more risk, enjoying the benefits of success but also suffering distress in the case of loss.

It is around this moment, with the clear establishment of risk and reward as an emergent property of human collaboration, that the essence of financial activity is established, facilitating investment sustainability, capital resource movement, mitigation of risk, and redistribution of wealth. The first existing records of financial activity come from the temple and palace curators in Ancient Mesopotamia. As well as keeping record of transactions, the temple collected deposits. These deposits were often considered debt that the temple owed to its depositors, and from which depositors collected a certain amount of interest. The temple also lent money and stored grain and silver, allowing merchants to withdraw deposits at their leisure (Nicoletti, 2017; Puschmann, 2017).

Authorized deposit taking was also done in the old empires of China, Egypt, Greece, and Rome. Although private bank-like enterprises existed in ancient Greece, the first banks as we imagine them today appeared in the Middle Ages, with money-lending and the issue of bills of exchange by merchant bankers in the Italian cities of Florence and Venice. Soon, banking associations for the exchange, discounting, and remittance of bills were set up in all the Italian cities. With the development of Renaissance, banking consolidated its significance in the economy, with powerful institutions offering letters of credit, bill discounting, and loans to merchants and governments.