This article highlights the fact that there is no single definition of the term FinTech. It is, however, an essential topic for the TC68 Community to understand. As members of TC68 study and working groups create and amend standards for the financial services industry, consideration of whether the content of the standard is flexible enough to support “FinTech” innovation will be critical.
Stephan Wolf, William Nichols
The Industry view
Everyone who attempts to define the term agrees that FinTech is short for Financial Technology and that it is about innovation and advancement. The term FinTech has been around for a few years. However, its interpretation is ambiguous. The meaning seems to be shifting to keep up with the evolution in business, processes and technology.
Technological advancements are driving new business capabilities and functions. Related industry trends show these are emerging by the extreme growth in data size and composition, the adoption of cloud-based computing, augmented by dizzying advances in machine learning technologies.The jury is still out on cryptocurrency technologies, but just keeping up with the spectrum of FinTech approaches and the applicability of the method to different business problems can be a full-time job.
The core of FinTech is about using new, technology-based solutions for businesses to increase customer benefits. Christian Faltin on DigitalWiki says that FinTech companies are those that develop new solutions that are an advancement in the financial service sector (Faltin). FinTech Weekly makes the same statement but goes further, viewing FinTech companies as competitors to traditional banks, which struggle to keep up with the innovations of FinTech startups (FinTech Weekly).
Mirco Stalla of Zinsland agrees that part of FinTech is companies using modern technologies but adds that FinTech is also about innovative solutions to digitalize the processing of financial business. He notes the labelling of many enterprises as “-Tech” companies is very broad and depends on the field in which the company engages. For example, companies in the insurance sector fall under InsurTech, those from the real estate segment as PropTech companies. According to Stalla, FinTech cover the areas of payment, securities, investment, financing and financial advice (Stalla).
Another approach comes from Investopedia, which defines FinTech as an emerging financial services sector in the 21st century. Investopedia notes that the term initially applied to the back-end technologies of established consumer and trade financial institutions. The name has expanded to include any technological innovation in the financial sector, including changes in financial literacy and education, retail banking, investment, and even cryptocurrencies like bitcoin (Investopedia). The common thread is that evolving technical capabilities enable new approaches to solve old (and new) business problems.
A more straightforward yet much narrower definition of the term FinTech is applied to companies that use the internet, cellphones, cloud computing and open-source software to make banking and investment more efficient (Bloomberg).
The Public Sector View
The European Commission describes FinTech as innovation enabled through technology in the financial sector, as stated above, but adds that the nature or size of the service provider is of no regard. The European Commission divides FinTech into two tribes: non-disruptive FinTech, which increases efficiency through continuous innovation; and disruptive FinTech, which brings forth radical breakthroughs that can create entirely new markets. (EUROPEAN COMMISSION Directorate-General Financial Stability, Financial Services and Capital Markets Union).
A study written on behalf of the Federal Bureau of Finance of Germany defines FinTech as companies, or units of existing companies, that combine financial services with modern, innovative technologies—typically internet-based and application-oriented. FinTechs aim to increase the customer benefit through advantages like simple usability, efficiency, transparency or automation. In this context, FinTech includes companies that sell insurance, finance and banking related products, or that act as a third-party provider, including companies that provide technology like software solutions for financial service companies. The study divides FinTechs into four significant segments: finance, asset management, payment transactions, and others, each with their subcategories (Prof. Dr Dorfleitner et al.).
In the United States, market regulators (the Securities and Exchange Commission (SEC)and the Commodity and Futures Trade Commission (CFTC) have both launched “incubators” and Fintech groups, while the Federal Reserve Board has held a series of outreach seminars in cities across the country. All talk about the need for “responsible innovation” or “socially beneficial innovation”. Both the CFTC and the SEC have provided web-based mechanisms to allow firms to ask the regulators how specific technologies or business models may fit under existing or future regulation.
The Geographical View
According to Bloomberg, Asian countries such as China, India, Singapore spearhead consumer adoption. According to a 2017 survey conducted by Ernst & Young, the average consumer adoption rate in 2019 was 64%. Highest rates over 85% were achieved mainly in Asia, e.g. China and India.
The Importance of Standards
The ISO TC68 FinTech Technical Advisory Group (TAG) describes FinTech as follows: “FinTech covers digital innovations and technology-enabled business model innovations in the financial sector. FinTech aims to increase customer benefits in terms of usability, efficiency, transparency and automation.”
As the different views in this article highlight, there is no single definition of the term FinTech. It is, however, an essential topic for the TC68 Community to understand. As members of TC68 study and working groups create and amend standards for the financial services industry, consideration of whether the content of the standard is flexible enough to support “FinTech” innovation will be critical.
In conclusion, Patrick Schueffel suggests that “Fintech is a new financial industry that applies technology to improve financial activities,” as such TC68 will play an essential role in such improvements.