The time of reckoning for fintech

The world changed for the better with the introduction of the World Wide Web three decades back, and the flow of information across boundaries became easier than ever before in human history. Arguably, the internet held the promise of being free and inclusive. The word ‘digital’ acquired new significance and continues to be used ubiquitously to define the evolution of almost everything around us today.

The same cannot be said about the flow of value, however.

Even to this day, half the world’s population is deprived of formal financial services. ‘Financial inclusion’ has been a utopia, finding a mention in the vision statements of most financial institutions such as banks, insurers and more recently of fintechs.

The coming of fintech

The Global Financial Crisis in 2008 changed that for the better, with the advent of new ventures which came to be known as “fintech” or financial technology companies. The idea was to alter the flow of value, by making it more accessible, inclusive and free. A slew of visionary entrepreneurs was keen on challenging the status quo around the protocol of transfer of value. The birth and rapid uptake of the smartphone became a turning point for the entire financial services industry.

The poster boy for this transformation is a lesser-known name in the Western world. M-pesa was born in the most unbanked continent in the world back in 2007, and had over 37 million customers and 400,000 agents across seven countries in 2019, carrying out 11 billion transactions in the year, and averaging more than 500 transactions every second in December 2018.

In the Western world, Nikolay Storonsky—a British-Russian banker at the infamous Lehman Brothers which fell in the aftermath of the Global Financial Crisis—and others like him were growing increasingly disillusioned with the opaqueness and rigidity of the world’s financial systems, which were in part known to be responsible for the crisis.

This is what he had to say in an interview: “Many of Lehman Brothers’ top employees who left in the aftermath of its collapse decided to start their own businesses. A generation of entrepreneurs rose from the ashes, but many were disillusioned with the financial system. At the time, I was working as a derivatives trader at Lehman’s when Nomura bought our division, but I ended up taking an offer from Credit Suisse, where I eventually met Vlad Yatsenko, Revolut’s co-founder and CTO.” He adds they were both “frustrated” with the fees charged to send money overseas – and so they launched Revolut in 2015 “as a way to rebuild the industry from the ground up using technology”.

Today, Revolut is the world’s fastest-growing fintech unicorn, opening 25,000 new accounts every day, and with more than 10 million customers globally, he added.

While solving to provide access to financial services for the unbanked has been a north star for many of these endeavours, more have failed than succeeded. The promise, however, has finally found a time of reckoning in the ongoing pandemic and the resulting quarantine, and the unusual aversion to cash.

The great upheaval underway around the world continues to disrupt every economic activity, in ways that were unfathomable only a few months back. Yet, for the fintech industry, it has presented an opportunity to finally go for the north star. This will mean access to all and the potential transfer of value at the same speed and ease as we have when transferring information, without “breaking the bank”, metaphorically speaking.

This is an excerpt from an article published recently by Unravel. Views expressed are personal.