The globalization of financial service can be seen as the integration of the nation’s financial system with international financial markets and institutions (REF), it requires that the nation or regional government to liberalizes the financial and capital market sector. Especially, past World War II, the movement of financial globalisation was mainly impelled by the Western or developed countries, with their active participants in the financial globalization process, whereas the remaining developing countries jumped on the financial globalisation train at a much later time, which happened approximately around the early 1980s and started to participate in the process of financial globalisation (REF).
With the emergences of financial globalization, the general goal for most financial institutions was to evolve from traditional banking business (REF) and to tap into the global financial service sector and to gain and obtain a greater competitive advantage through cultivating strategic alliances and partnerships with other financial and non-financial service institutions, so as to provide a more diverse financial goods and services to consumers. Particularly, the advancement of internet technology has shifted the global financial services industry approach, scope and competitive landscape and at the same time the move of most developed nations to privatize and to deregulate their financial sector, to provide a unique mix of customer segments and to becoming more customer-focused. The globalisation of the financial service sector is not a new phoneme (REF), however, today’s global financial interconnection and depth dependencies have made the majority of the financial service institutions to be more flexible in terms of innovation and technology (REF).
As the financial service has gone through a tremendous change from local banking towards a more global presence and due to the technology advancement, customers demands and needs has evolved at the same pace. In the late 1970s and the early 1980s that are seen by many as the golden age of the modern investment banking (Di Muzio 2014), many financial service institutions started to invest heavily into the revolutionary technologies. These steep development reached its heights during the Dot-Com era, where firms like Google, eBay, Paypal or Amazon managed to outlive the Dot-Com Bubble (ref) to become nowadays an absolute market leader in their industry and other like Pets.com or Broadcast.com did not survive the bubble and were labelled as a total flop.
The traditional banking business has always been a key component in the financial service sector, however, the swift development of technology around the world has changed the economic and financial service industry. As Zavolokina et al. (2016) have pointed-out that the traditionally known financial service and capital market is rapidly disrupted and transformed by the phenomenon of Financial Technology or for short FinTech (Schueffel 2016) and Lee (2015) describes FinTech in his report as the amalgamation of overall financial goods and services available to end consumers through new technological innovation and digital solution. Not only has the new disrupted innovated FinTech has changed and at the same time created numerous new business models, but also it has changed the customer’s needs and demands (Zavolokina et al. 2016). These visible changes have changed and disturbed various forms of the finance, capital and economies such as the banking and financial regulations, investment and banking industry and payment and transaction services (Accenture 2015).
Although technology has been one of the cornerstone’s of the financial service sector, it was only after the financial crisis that altered the mindset and laid down the foundations for the future of the FinTech (ref). Arner et al. (2016) suggested that the root and cause of the recent Global Financial Crisis, could be traced to the financial infrastructural and regulatory inefficiency and market failure and a new approach was more than needed as a new channel that needs to have the capabilities to fill the gap in the financial service market. The increasing interconnection of Internet and Personal Computer (PC) not only in the operations of various financial and non-financial business but at the same time, for the general public, has created new electrical services that have the power to reduce the disparity between the financial service sector and the customer’s needs (PwC 2016). These new types of solutions are tailored to be used with ease (PwC 2016) by the end customers and at the same time to use the highest level of technology and digital transaction speed and are less centralised in their business models that allows them to work more independently from the larger multi national corporate financial service enterprises.
Since the 1980s, where the first banks started to introduce digital based service over the Internet to their customers (Allen et al. 2002), the financial service sector has continuously undergone a digitised transformation (Deloitte 2016), from the online payment gateway Paypal to the decentralised online cryptocurrency BitCoin (González 2004), the new era of online based financial service has just begun. The rise of FinTech has facilitated emerging firms such as FinTech start-ups (Ref) to provide an alternatives forms of services to the overall public in the fields of payments, borrowing and lending, investment and most important security in financial transactions.
In this part of the Literature Review we will outline the current researches, reports and academic literature on Financial Technology. For the Purpose of common understanding, we will refer to Financial Technology as FinTech.
The year 2016, can be said was the year of uncertainties. First, with the Brexit referendum of United Kingdom (UK) perminantly leaving the European Union (EU) and second, the election of the Donald Trump as the President of the United Stated (US), has created a event of fragility. Although the election of Trump has pushed the NYSE and NASDAQ to record high returns (Authers et al. 2016), other variables have formed a more unease prediction for the Financial Service sector and alternatives to the traditional finance was needed. Undoubtably FinTech had an unbelievable glodrush vibe over the past 5 years (ref). With year after year, where Venture Capital (VC), Private Equity (PE) and also through Merger & Acquisition (M&A), new investment has been put in new promising and emerging technology in Finance. In 2015, it was the peak of the FinTech hype with a total annual global investment of over $47 Billion (KPMG 2017) in Fintech companies, which was an increase of over $18 Billion to 2014 (Vucicevic 2017 and KPMG 2017). Graph 1 below illustrates the annual global investment in FinTech between 2010 and 2016, where a clear trend in FinTech investment can be observed from 2012 to 2015.
Nontheless, 2016 was a demanding and difficult for the global investment in FinTech sector. As mentioned earlier, the uncertainty of the Brexit vote outcomes and the impact of the negotiation between the UK and the EU, has caused many global FinTech investors to switch into a caution mode and awaite the results of the negotiation. The first signs of these uncertainties has surfaced, where almost one year after the Brexit referendum vote, many major Financial Service organisation has decided to relocate their operation from London (which is or was the global financial service hube), to other European Cities. With This in mind, many FinTech start-ups or companies will most likely follow the same trend.
Another worrying event in 2016 was the US presidential election of Donald Trump. Although many expert believed that the newly elected US president would have a negative impact on the US economy, quite the contray happened. The NYSE and NASDAQ gained all time record profit, but on the other hand the market volatility has increased by over 10% at the same time, where it reflects a greater uncertainty of the overall market.
The KPMG (2017) report shows that the global FinTech sector is recovering steady from the 2016 shocks (ref). At the same time the recsent FinTech trends as illustrated in the KPMG report (2017) that in 2017 there will be more confidence from VC and PE to invest in FinTech again. Nonetheless, many eyes are currently focused on the US adminstration, as it plans to put a more stricter restrictions on the skilled foreign labour. These expertise are desperatly needed in the FinTech hubs such as New York (with its sheer concentration of financial service institutions and especilly Wallstreet (Ref)) and Silicon Vally (the epicenter of the global tech movement). Many FinTech firms are aiming for a more easygoing approach from the US administration, with the hope that it could boost talented and skilled workers in the area of FinTech. Another major FinTech hube is London (ref) and with the UK government’s “devorce strategy” (wired 2017) of an “Hard Brexit” (wired 2017), the free movement of labour could could be put on halt from March 2019 onwards and many UK based FinTech companies would lose out their “passorting right” (wired 2017) to operate within the EU and various FinTech companies could rethink their UK operations and could decide to relocate their operations to other EU member states.
As there are other macro or external events that could potnetially have either positive and negativ impact on the FinTech development, nevertheless, the current advancement of the FinTech phenomenon has a resembling corallation with the Dot-Com boom era of the late 1990s (ref). Especially when comparing FinTech with Dot-Com companies, a similiarity is that both had a high growth of firms entering the market and being valued in billions (ref). However, since the Dot-Com bubble various variable have change, so as to avoid another “tech bubble” (ref). For one firms that aim to go publich through IPO need to have at least $100 million in annual revenue (ref). Another point it that many FinTech do not intend to reinvent the wheel again, whereas the majority of FinTech companies are focused to find new and unorthodox solutions for existing issues and problems in the financial service sector from a technological viewpoint (ref).
NEEDS to put refernaces in
Figure 1. Source: (KPMG 2016)
The fast growth, the steady establishment and the disruptive innovative power of FinTech has shocked and surprised the financial service and banking systems at the same time (PwC 2017). An Accenture (2016) report outlines that between 2010 and 2015 the global financing activity rose by almost 1250% within 5 years. Graph X illusrates that in 2010 there was an investment activity of $1.791 Billion in FinTech companies with 338 closed deals. This number dramaticlly increased to over $22 Billion in 2015 as well as over 1100 deal closed. Graph x also reflects that the majority of the FinTech investment was done in the US which account of over 80% in 2014 and 75% in 2015.
When Looking at the current development, we can catigorise FinTech companies in two different types (Accenture 2016). The First is the competitive type of FinTech companies, that directly contest and challenge the existing financial service organization incumbents and the second one is the collaborative type of FinTech companies that provides services and solutions, so as to advance and improve the current position of the already existing financial service incumbents (Accenture 2016). By focus on graph y, we can see that the majority of the FinTech financing activity is mainly aimed towards the sompetitive segment of FinTech. In 2014, the ratio was 71% of the investment gone into the competitive FinTech type and only 29% towards the collaborative FinTech type. However, as shown in graph y, in 2015 the investment into the collaborative FinTech type rose to 44% of overall with the agenda that collaborative Fintech companies aiming to create a long-term collaboration with the financial service industry to generate and to constitute a more edge in the financial and capital market. Nonetheless, the competitive FinTech still accumulates the majority of the investment. This shift of trends suggests that long-established financial service institutions have started to acknowledge the necessity of the FinTech expertise and knowhow, where the collaboration could guarantee future sustainable growth potential and at the same time to pioneer new innovation (ref).
With the groundbreaking journal ‘The Evolution of FinTech’ Arner et al. (2015) outlined that theterm FinTech can be backed to the early 1990s and it specifies “the Financial Service Technology Consortium project that was initiated by the Citigroup” (Arner et al. 2015). However, the term FinTech came first known to the public, when it was first publiched in 1993 in an article of the Amercian Banker magazine (Hochstein, 2015a), as a new trendy term to dircribe the technology that Citigroup was researching in the area of intergration of modern Personal Computer and Internet in the banking and investment operations (Hochstein, 2015b). Back then, the understanding of “FinTech” was the technology which were in use in the financial service sector and not to be mistaken by the current usage of the term of FinTech.
Arner et al. (2015) and Prabook (2016) underlined in their research that the term FinTech was used already in the 1970s, in an academic research article. It outlined the theoritical models on how to analyse and solve the day-to-day problems that financial service instituations are confronted and that technology could provide the needed tools to overcome it. At the same time, the first definition of Financial Technology was ”FinTech is an acronym which stands for financial technology, combining bank expertise with modern management science techniques and the computer” (Bettinger 1972, p.62).
Since the first use, the meaning of FinTech has reinterpreted a various time event and occasions. In the next section, we will look at the definition of FinTech.
When applying the term “FinTech” to Google and analysing it with Google Trends from June 2014 to June 2017, as illustrated in Figure 1, it had on average a monthly score of over 255,000 searches worldwide on google.com for the month on June 2017 (Google 2017a). This number of hits might not seem as very high, but when comparing it to the term “Financial Service”, with an average search of 45,000 per month (Google 2017b), as we can see in Figure 2, that past January 2016 term “FinTech” became more relevant. However, when scaling the search between the least search google entries and highest search request from January 2016 on a scale from 0 and 100, the observation shows a significant rise in the general interest for FinTech with an average score of 75 from 100 for the past 18 months and an average score of of 88 from 100 from January 2017.
Fig. 1. Popularity of the term “FinTech” in Google Search Engine
Fig. 2. Comparing the popularity of the terms “FinTech” (Blue) vs. “Financial Service” (Red)
Having had a brief view at the popularity of the terminology of FinTech, we will show the orgine and meaning of FinTech that has been outlined in various reports and journals.
Looking at the meaning of FinTech one of the academicly recognised dicitionary defines FinTech as “Computer programs and other technology used to support or enable banking and financial services. Fintech is one of the fastest-growing areas for venture capitalists” (Oxford English Dicitionary 2017). A more widely used online source has defined FinTech as “FinTech is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services” (Wikipedia 2017). Altough, it is argueable to the reliability and contemporary of the above sources a more siencetific definition is needed from various point of view so as to better comprehend the overall definition of FinTech.
Although, it took less than a decade for FinTech to disrub the global financial service sector, there isn’t still a common understanding of the defintion of FinTech (Schueffel 2016). A 2017 survey in Germany highlighted that 70% of the financial service customers did not know how to define FinTech (Absatzwirtschaft 2017). These recsent survey illustrates that it is necessary to outline academic understanding of the meaning of FinTech.
Arner et al. (2015, p.1) discribe FinTech as an onging development process where finance and technology have merged together, that has led to new “disruptive and incremental innovations” (Schueffel 2016). Likewise have Chishti and Barberis (2016) outlined in their book that the “marrige between finance and technology” (Schueffel 2016) in the financial sector has created firms that were not on the radar of the financial service prior the 2008 Financial Crisis (Chishti and Barberis 2016).
Below we have created a table of various academic and non-academic defintion of FinTech between 2014 and 2017.
| Definition | Refernance | Type |
| “Financial Technology, also know as ‘FinTech’, is a new sector in financial industry that incorporates the whole plethora of technology that is used in finance to facilitate trades, corporate business or interaction and services provided to the retail consumers.” | Micu and Micu 2016 | Journal |
| “’FinTech’ can be broadly defined as technologically enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets, financial institutions and the provision of financial services.” | Carney 2017 | Conference Speech |
| “’FinTech’ is an economic industry composed of companies that use technology to make financial systems more efficient.” | Williams 2017 | Blog |
| “Recent advances in information and communications technology (ICT) have led to the rapid development and expansion of new and innovative financial services, often termed ‘FinTech’.” | Jun and Yeo 2016 | Journal |
| “’Fintech’ is a new financial industry that applies technology to improve financial activities.” | Schueffel 2016 | Journal |
| “The term ‘FinTech’, which is the short form of the phrase financial technology, denotes companies or representatives of companies that combine financial services with modern, innovative technologies.” | Dorfleitner et al. 2017 | Journal/Book |
| “’Fintech’ is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century. Originally, the term applied to technology applied to the back-end of established consumer and trade financial institutions.” | Investopedia 2017 | Website |
| “’FinTech’ companies are defined as those that offer technologies for banking and corporate finance, capital markets, financial data analytics, payments and personal financial management.” | Accenture 2016 | Report |
As presented in the above table, there is not clear guidelines and common understanding how to define FinTech. As we can see in the table most of the definition on FinTech are relatively new. Schueffel (2016) aregues in his publication “Taming the Beast: A Scientific Definition of FinTech”, as the technology on and around FinTech eveloves so does the understanding and definition of it. As an example he uses Investopedia, where the definition of FinTech got updated or changed altogehter over 7 time between 2014 and 2016 (Schueffel 2016). We have to acknowledge that websites such as Investopedia or Wikipedia, cannot be used as a reliable source of scientific and academic evidance of definition and terminology. As the majority of FinTech companies are still in the early phase stages, the needed research and further studies will provide a more in-depth understanding of the meaning and while the large number of FinTech companies are start-up. However, there are also firms that have passed the start-up phase established themselves and managed to become integrated international organisation. An Example is Stripe, which was found in 2011 and has valuation of over $9 Billion as of 2017. Stripe has eveolved itself from a start-up and is a internationally active FinTech payment service provider. It goes without saying that such a new fast growing industry is change at a rapid pace and through further investment in the FinTech sector, new disruptive innovation will emerge.
The overall goal of FinTech companies is to attract new customers with their innovative and revolutionary goods and services that (ref) is more customer orianted, productive, efficient, user friendly and secure. In comperision many trational financial service and especially banks have to some extent neglected over years their technology and are faced with new competition (Machanzie 2015). Chiu (2016) suggests that the majority of FinTech do not solely focus on financial service related activities, but in the past years other sub-brenches of have gained great attention, such as Insurance Technology (InsurTech) and Regulatory technology (RegTech). Breaking it down into simple terms, “FinTech companies just simply provide the technology (software solution) to financial service provider” (Dorfleitner et al. 2017).
In the past decade, the change in the preference and behaviour of consumers have evolved, in particular due to the technological integration that has become a necessity for many people and businesses (Leonard-Barton and Kraus 1985, Peppard and Ward 2016) and most of organisations as well start-ups are see in this trend a new “goldrush” (Boccardi et al. 2014). As the new emerging technology finds itself more and more into the daily lives of general consumers, they as well try to embrace the new technologies at a more faster pace (Gunther McGrath 2013), collecting, gathering and obtaining information for alternative sources (Ratchford et al. 2014) and as well as the PwC (2014) “Retail Banking 2020 Evolution or Revolution?” report shows that the consumers have become more vary and their loyality has shifted from their traditional banks and financial service institutions towards a more demanding of level “personalisation, convenience and immediacy” (Pollari 2016).As the economic contribution of the Baby Boomers and Generation X is decreasing (IMF 2017) and the new Millennials generation is growing that accounts of over 1/3 of world population (ATKearney 2016). As Millennials will be the driving force of the future financial, capital and economical market, the new disuptive FinTech sector is trying to lead the developments and trends in the greater marketplace and satisfy these new demographics demand. A recsent survey of Wharton FinTech (Manji 2016) show that the majorty (73%) of Millennials do not think that traditional financial service institution fully meets their excpetations and over 57% stated that actively use alternative channals of transacting their business.
Certain sectors have managed to maintain their traditional business infrastructure, such as commodity trading, where contract, licencing an other document are still printed physiclly. However, the “digitalization movement” (Lasi et al. 2014) has pushed various sectors and industries to shift their business on to the digital platform (Parmar et al. 2017). With the swift adoption of mobile telecommunication devices (Smartphones, Tables, Smartwatch, etc.), has created a newopportunity for many business andcomsumers. A rescent research report of eMarketer (Murphy 2017) showes that there are over 2.4 Billion Smartphone users in 2017 and at the same time over 3.5 Billion people around the world are using on a daily bases the Internet, additionally by 2019 eMarketer predicts that half of the world population will access the Internet through a Smarthphone (Murphy 2017). The Pew Research Center survey (Pouchter 2016) outlines, although the internet access and smartdevice usage is more dominat in develped nations, emerging and developing countries such as Brazil, China, India, Indonesia or Russia continue to advance in the digitalization of their economy. Moreover, The survey suggests that the emerging and developing economies over 64% of their population between the age of 15-45 years (Pouchter 2016). New payment Platforms, Online Transaction Server or Online Wallets aren’t more a small niche or just for certain cliental, but they have become a essential and alternative approach for many consumers and businesses. Furthermore, the advcancement, development and implementation of Internet of Things (IoT) or Artificial Intelligence (AI) has shown great promise. A Ernst & Young (2016) report indicates that by 2020 there will be over 30 Billion IoT devices connected globally which shows that the digitalization will be more relevent in future.
The digitalisation trend continue to grow and many FinTech start-ups and companies have already created a entire segment to it and as most business transaction are conducted digitaly it will continue to grow. As of August 2017, the 5 most valueable companies are in the segement of technology, Alphabet (Google), Amazon, Apple, Facebook and Microsoft (ref). Even though, these companies provide different goods and services, undoubtably the movement is shift more towards digital serivces, such as cloud commputing, data management & analysis and online transactions (ref).
In many industries the pace of technological changes have increased, due to the rise of competion and the fall entery barriers (Gunther-McGrath 2013). As Porter and Millar (1985) mentioned in their HBR report “the information technology is advancing faster than technologies for physical processing. The costs of information storage, manipulation and transmittal are falling rapidly and the boundaries of what is feasible in information processing are at the same time expanding”. As adoption of technology evolves at a much higher pace, some revolutionary and ground breaking past technology could these days be replaced by much newer and advanced technology through disruptive innovation (Paap and Katz 2004). Even certain business sectors have been disrupted by newer one, particularly those sectors that understood the importance of technology, e.g. Uber that will revolutionise the transport business, AirBnB will change the hopitality industry, Tesla will turn the entire automible industry upside down. It took these organisation only few years to reach the brand recognition and gain market share and to challenge the incumbents. An example of pace increased technology is that it took telephone over 60 years to to be available to 80% of the US households, on the otherhand it took cellphone only 15 years to reach the same amount.
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