The FINTECH Book. Chishti Susanne

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and FinTech companies to collaborate more for the benefit of their customers. The objective is to boost competition for the benefit of consumers. This is an important step, as thanks to the influence from the UK government many innovative organizations could get access to financial data going forward.

      Another important piece of legislation in Europe is the Payment Services Directive 2 (PSD II). Although the whole analysis of PSD II is rather complex and beyond the scope of this chapter, in summary the European Parliament also wants to see easier access to banking data to enable innovation while at the same time preventing any data misuse and security breaches.

      Wearables, Foreign Exchange (FX), Bitcoin, and Blockchain Trends

      Having reviewed regulation trends, we now want to highlight key applications of FinTech. In the foreign exchange sector, services like WeSwap23 are entrants into the currency exchange market, but they are doing things quite differently from the traditional money exchanges – WeSwap actually allows people from different countries to interact and exchange local currency at a pre-determined local rate, far cheaper than the commission traditional money exchange businesses place on exchanges. WeSwap is backed by MasterCard24 and is expected to grow exponentially over the next 18 months.

      Although not yet commonplace, smart wearables are set to revolutionize the banking industry. The forecast for shipping wearables in 2015 is 45.7m units25 and this is only going to increase. The Apple watch already allows the wearer to check their banking balance, track their transaction history, and find a nearby branch – once the mobile banking transaction systems are expanded and improved, the functionality of these smart wearables will only increase further. Jeremy Mugridge, Marketing Director at Instinct Studios is quoted as saying, “wearables have been around for a while now, but we’re likely to see this gain momentum after the release of Apple Watch. 2015 will be the year where we’ll see a shift in focus from health and fitness towards other areas like people’s financial health.”26 For those of you who doubt that smart wearables will become that popular, take a glance at your smartphone and think back 10 years.

      It is perhaps no coincidence that after the economic crisis, driven in part by banks, consumers are now paying closer attention to their own finances than ever before. Indeed, several apps have been created to allow consumers to do just that – one app, called Spendific, connects to a user’s bank account and, after taking into account all of their outgoings, states what is left to spend. This is updated in real time as purchases and payments are made from that account. This innovation, though, is comparatively basic when compared to MoneyHub, who have developed an app that does something similar, but also includes long-term savings in the financial planning process. Things like buying a house and desired retirement age are included and different scenarios can be created to see what impact the consumer’s decisions will have on their financial outlook.

      More and more financial services provision is being conducted online and as Generation Z (the demographic segment born after millennials) will only ever know “mobile”, it should come as no surprise that this is and will continue to be the case. Smart wearables, specifically technologically advanced financial apps and an increase in mobile payment opportunities, are the result of consumer demand.

      Although they are taking a somewhat slow foothold, there are clear signs that crypto-currencies are here to stay – for example, California made them legal tender in 2015.27 In Europe some countries are already seeing bitcoin – an example of a crypto-currency – take hold in bartering-type exchange systems. Arguably, there is not yet a bitcoin usage model quite where the industry needs it to be, but this will be developed over time. However, the development of all of this could be hindered by regulations and national laws. Seen from an idealistic viewpoint, people would be able to use bitcoin, or other crypto-currencies, anywhere in the world, instantaneously. Yet, with different rules and regulations governing states and the different financial institutions involved, getting unanimous agreement on how crypto-currencies should work could prove difficult.

      In this respect, blockchain (the technology on which bitcoin is based) is a distributed data store that holds a public ledger of transactions for crypto-currencies, such as bitcoin itself. A dedicated chapter in the book covers crypto-currencies and blockchain technology.

      It is clear that FinTech has already made huge inroads into many aspects of our daily lives. What is perhaps even clearer is that the surface has barely been scratched in relation to what FinTech can do for us all in the future. As we consumers become ever more demanding and discerning in our choices, you can expect to see financial institutions rely increasingly on FinTech developments to provide the solutions to keep us happy and meet our needs.

      In summary, we are now living in times of significant transformation of the banking sector. We can probably assume that banking over the next 10 years will experience a higher degree of change than in the last 100 years. Financial technology innovation has started a global shake-up of the sector. Now the most important question remains: will banks be able to successfully embrace FinTech innovation or not? FinTech is set to play a bigger role in your life than you might have ever expected.

      2

      FinTech Themes

      After the introduction to the financial technology sector in the previous part, this second part focuses on some key general themes. The chapters highlight the importance of collaboration between the established players and the FinTech start-ups while providing a global overview on regulatory frameworks impacting FinTech. Regulatory compliance is a prerequisite for success for FinTech companies worldwide. Marketplace lending – one of the key disruptive FinTech business models is also explained in more detail here.

      As we all tend to live increasingly digital lives, we have several identities online. The topic of identity management, particularly important for FinTech, is covered here. The threat of tech giants to incumbents, as companies such as Apple and Facebook have entered the global payments arena, is also highlighted.

      Finally, principles and the importance of good design are discussed to ensure that the user experience of financial products and services is what the customer expects, based on their interaction with the leading consumer and technology solutions.

      Banks Need to Think Collaboration Rather Than Competition

      By Rachel Nienaber

      VP Engineering, Currency Cloud

      Historically, banks have been responsible for most innovations in the financial industry. The inception of the credit card in the 1950s and ATMs in the 1970s completely revolutionized the way we access and pay for goods. Jump forward to 2016 and it is a very different story. Those developments came decades apart, but following the significant growth and accessibility of the internet and the technology that advances in its wake – including smart phones, big data, social media, and cloud computing – demand has come from consumers to make it even easier to manage their finances. As such, financial innovation is no longer restricted to those institutions, allowing outside players to creep in to shake up the industry.

      The financial sector has continued to witness many impressive innovations and technological advancements such as contactless technology, digital wallets, and crypto-currencies. However the innovators are now rarely banks but small FinTech firms. These are often led by former bank employees who have identified a gap in an existing offering or service.

      Application Programming Interface (API) is the term used to describe a set of tools that enable different software components or systems to effectively communicate with one another.

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