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The Big Picture of FinTech



I am invited by Digital Ventures to write regular articles mainly focusing on FinTech. As this is the first article of the column, I would like to mention ‘the Big Picture’ of global FinTech trend to understand the dynamics of the Big Picture first before going into detail of each aspect of FinTech.

Having follow the developments of FinTech at a global scale, I think the ‘very big picture’ of FinTech currently can be divided into 2 categories.

First is the digitalization of financial services.

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Actually, this is nothing new since the financial world has always been the first to employ information technology before other industries. Previously we have seen a shift from ‘cash’ to ‘electronic money’ through using credit and debit cards.

However, a shift from the world of cash to the world of digital money is far from complete due to various reasons such as insufficient investments in electronic card readers (EDC) infrastructure, or due to cultural reason of money payment, money transfer, which differs in each country. (For example, Thai people are consciously afraid of their credit cards being hacked) The result is that many countries cannot transcend to the era of digital money as much.

In the era of smartphone, many new technologies can solve the problems of transcending to digital money. The clearest example is the problem of installation of electronic card readers which requires high investments to install a multitude of machines. Such problem can be solved by using a cheaper reader attached to a smartphone or tablet instead. (The current model of Square.) Or else, transforming a customer’s smartphone as a payment approver. (Such as PayPal or Alipay applications, or the business’ own application like Starbucks.)

Besides paying to shops, personal money transfer is a lot easier in the era of smartphone. Personal money transfer becomes a big hit in Africa where banking infrastructure is still very limited. Transferring money via SMS such as M-Pesa is hugely popular in Kenya. In the era of smartphone and applications, the western world has an app for transferring money such as Venmo. In Thailand also, Promptpay is developed with similar mindset. This does not include FinTech services on portable devices by many newcomer startups.

The Big Picture of FinTech in this category is that a consumer can access more digitalized services from financial institutions in an easier, more comfortable and more personalized manner.

Second is cutting out the middleman.

Processing data in the financial world nowadays requires series of organisations acting as “intermediaries” between the process, causing delays and incurring high cost.

The simple example is cashing a cheque between banks. A customer having received a cheque issued by one bank brings the cheque to cash at another bank. It requires ‘clearing process’ to verify with the issuing bank whether the cheque is valid, which is a burden for both issuing and receiving banks and unnecessarily wasting time and money.

The new processing technology such as Blockchain or Distributed Ledger comes in to fill the gap. When everyone can access a credible source of information and able to verify its authenticity without the intermediary acting as a ledger, the time and expense will be much decreased.

Thus, we have seen eager responses for Blockchain technology, being applied in several sectors of the financial industry such as insurance, investment, international money transfer, etc, all of which are likely to provide tangible outcome soon.

Generally, the FinTech trend in this category is more on the relationship between financial institutions. The consumer might not need to deal with Blockchain or Distributed Ledger directly, but will benefit indirectly in terms of reduced fees and transaction time.

I think the big picture of FinTech mainly relates to these 2 topics. What’s interesting is the changes that occur concurrently, both between the consumer and financial institution and among the financial institutions. The financial institutions, therefore, are under pressure to adapt quickly (due to requests from consumers and business partners). The financial institution which fails to adapt to this change will find it hard to establish its presence in the next era of financial world.

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