The history of fintech- and why they are gaining such traction now
Updated: May 7
In examining fintech’s history, we must go back to the 1950s when credit cards were issued to help alleviate the burden of carrying cash. First, Diner’s Club introduced a credit card in 1950; with American Express launching their own credit card in 1958.
The 1960s heralded in the use of ATMs- this was a significant step forward as this was the first computerized system that would replace human interaction- people could withdraw cash rather than deal with bank tellers. The 1980s introduced bank mainframe computers and enhanced data systems. The 1990s were pivotal with the rise of dot coms- with the introduction of online stock broker websites for retail investors, which acted to replace the phone in placing stock transactions.
It wasn’t until the early 21st century that the fintechs we know today really started to flourish. In this time we also saw the retail end of financial services being further digitized through payment apps, e-wallets, equity crowdfunding opportunities and online lending platforms. While these developments have been significant to consumers, some experts are voicing concern as they believe the exponential growth of fintech will disrupt the models of banks, and take a huge bite out of their business and revenues.
At the most basic consumer level- banks take deposits and lend money- and by doing so, they are able to create new money when they add interest to the loans they give. We explored the fractional reserve banking system further in this blog: https://www.apaylo.com/post/digital-currency-the-future-is-now
The issue is- underdeveloped economies in African and Asian countries do not have access to this kind of personal banking- and mostly hold their life savings in cash; without a bank account.
Fintech startups have made inroads into these underserved nations, and are offering them solutions such as secure mobile wallets and payment apps, without the burden of carrying physical cash. In Kenya, M-Pesa is a highly successful fintech app that touts a very strong user base, and the mobile wallet is used on a regular basis for conducting transactions. This totally eliminates the need for a bank account among those users. These apps are bypassing banks by further allowing users to borrow funds and pay for products/services via their app.
In the U.S., fintech apps Apple Pay and Venmo are gaining traction, especially with the millennial crowd. These fintech apps are faster and cheaper than transferring money via bank accounts. Millennials are regularly using the apps to send funds to each other or make purchases.
Throughout the past few decades, fintech companies have without a doubt been industry disrupters; changing the traditional banking landscape and offering viable alternatives for global consumers- especially those in developing nations who are underserved by traditional banks. These people are now capitalizing on the rise of fintech apps to send money across the world- from Mumbai to Toronto instantaneously, in the click of a mouse.
As our economy and banking systems become further digitized- expect fintechs to continue to dominate the space and gain traction in its user base- banks have no choice but to be more competitive- or else risk losing a lot of market share. In this cutthroat economy- it is evolve or die- and this is what we are seeing right now as the “new kids on the block”- the fintech companies- are disrupting the landscape- for the better!