'Fintech' - Demystifying a Buzzword

IT HAPPENED IN A CASUAL CONVERSATION

While having coffee with a former colleague/friend recently, I mentioned that one of the areas of focus in this new phase of my career is helping clients with their fintech strategy.

There was a glimmer in his eye that indicated to me that he wasn't entirely sure what that meant. It was the exact same glimmer that I saw a few years back when I mentioned the words 'cloud computing' and 'Agile development.'

Later that day, that glimmer in my friend's eyes had me thinking...

This guy had decades of experience helping major banks implement fintech solutions. He could even be described as a subject matter expert on fintech. But he hadn't spent a great deal of time ingesting the hype-cycle that exists around the buzzword itself.

And 'fintech' is surely that - a buzzword enjoying a pretty big hype-cycle.

The very word intimidates some people into silence, intrigues others to learn more, and empowers a small clique of people to tell the rest of us that only they really 'get it' and that everyone needs to listen to their observations with bated breath.

This article is my attempt to make the term fintech accessible to all by demystifying it a bit.

Understanding the fintech phenomenon is important for a variety of reasons, but I believe two reasons are particularly important. First, more and more capital is flowing into fintech and history teaches that well-informed people always make better decisions. Secondly, fintech is increasingly disruptive to the financial services industry. This disruption should not catch any of us in the industry by surprise. Thinking through where the world's financial system is headed just makes good sense.

WHAT DOES 'FINTECH' MEAN?

fin·tech -?fin?tek/ - noun

• computer programs and other technology used to support or enable banking and financial services

Grammatically, the word 'fintech' is a portmanteau. A portmanteau is a word that borrows elements of two other words ~ financial + technology = fintech. The word 'portmanteau' in French refers to a coat that you carry ~ porter (to carry) + manteau (coat) = portmanteau. American English is filled with portmanteaus. Other examples are motel (motor + hotel), smog (smoke + fog), brunch (breakfast + lunch), sitcom (situation + comedy), and infomercial (information + commercial).

Conceptually, fintech refers to technology that is brought to bear on a need in the financial services industry. As such, it can be argued (and I do) that mainframes, ATMs and teller stations qualify as fintech. While the buzzword is new, fintech itself refers to a decades-old reality where financial institutions leverage technology in ways that make things easier and more efficient.

Practically, fintech also describes the way that the undeniable acceleration of technology is asserting itself in financial services right now. Raymond Kurzweil has popularized the notion of the technological singularity, which posits that AI is inexorably moving toward a point where it will unleash itself from human guidance and utterly change the world around us. While the idea of AI developing thoughts of its own and attacking humanity is deeply debatable, the overall hyper-acceleration of technology that the singularity implies is absolutely a very real thing. It makes sense that this hyper-acceleration would also be felt in financial services.

In summary, the word fintech is a portmanteau that refers to a phenomenon that started decades ago in financial services and is now moving forward at a much faster pace. If you followed that sentence, you 'get' fintech. Simple as that.

OK, BUT IS ANYTHING DIFFERENT NOW?

Yes, things are different now. The follow-on question to the above is - why is there so much talk about fintech right now? Why did this buzzword pop up in the early 21st-century at all?

It's because fintech is driving changes in financial services that are qualitatively different from the mainframes, ATMs and teller stations of years ago. These changes are so far-reaching that many of us hustle daily to keep up on the details, as well as speculate on where fintech may be headed. Consider some of the fintech developments we have seen in recent years...

• In a single generation, the ability to pay for an item has evolved from physical cash into plastic rectangles with magnetic strip and now into apps on our mobile devices. Through solutions like PayPal, we can now pay for items on the other side of the world in the blink of an eye via secure and simple methods.
• An entire category of currency has sprung up that are exclusively managed through technology. Cryptocurrencies like Bitcoin and Ethereum exist in a new digital-only arena and are (for now, mostly) outside of the governance structures of the world's Central Banks. One could argue that this means that money is no longer money in the sense that we have always thought of it.
• People can send each other money on different sides of the world through a few simple clicks on an app like Venmo or Square Cash. For both personal and professional uses, these apps make moving money incredibly easy and are changing our economic lives very rapidly.
• At the end of an Uber of Lyft ride, the payment just happens. Neither the rider nor the driver need to do anything. They've agreed on the amount and the method - so, the money moves from the rider to the driver once the ride is finished. These payments are almost actionless. Amazing.
• Instead of sitting down with a financial adviser to evaluate the best method of growing one's assets, it is now entirely feasible to sit on your hammock with your tablet and carry on a meaningful 'conversation' with a robo-adviser to get the help of an AI in your allocations of equities and bonds.

These are but a few of the examples that illustrate the way that fintech is changing how we interact with our money and, thus, with each other. Most of us are doing one or more of the above things already.

A mere twenty years ago, not one of these things was possible.

What this hyper-acceleration means for traditional banks is an important area of inquiry and is something I have written about before.

To bring it all together, fintech is a buzzword that refers to a very real phenomenon. It refers to the not-very-new practice of bringing technology to bear on financial services, as well as the current hyper-acceleration that is changing everything from money itself to how we interact with one another.

My sincere wish is that this may have helped to demystify the buzzword fintech. It's not an obscure corner of inquiry that only a few people can 'get.' It's something that is impacting all of us and promises to do more of the same in the future.

And what that future of fintech holds for all of us in the next twenty years... well, that is very likely to be very surprising and cool stuff.

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I'm always psyched to have some great fintech talent in my own professional network, check out Breaking Banks podcast, Brett King, Sam Maule, Let's Talk Payments, Patrick Rivenbark, and Levvel International.

@TriquetraIT on Twitter

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