FINANCIAL technology (fintech) has made a huge impact on the financial services industry, including insurance.
Better technologies and customer service expectations are mainly behind the fintech movement that was first made popular in Europe, with the introduction of Zopa, the first peer-to-peer lending platform in 2005.
Subsequently, Monzo and Revolut digital-only banks without any physical branch were founded in 2015.
Fintech is enabled by technologies such as open application programming interface (API), the Internet of Things (IoT), artificial intelligence (AI), machine learning and analytics, 4G and 5G networks, cloud computing and blockchain.
The main objectives of fintech and blockchain are realising benefits (i.e. cheaper, better and faster) from disintermediation (exclusion of the middlemen) and enabling financial inclusion.
Using cryptography (complex mathematics for robust encryption), hashing, consensus mechanisms and protocols (procedures and rules), blockchain technology ensures that unknown parties involved in transactions have no choice but to behave in ways that guarantee trust.
Immutability of data in blockchain results in effective and fast provenance, security and trust.
Trading in financial markets involves pre-trade, trade and post-trade activities.
In pre-trade process activities of the financial markets, benefits include democratisation of data – making data and analytical tools that were previously only available to brokers in big companies paying high subscription fees, available to retail investors at little or no cost.
This results in more traders and more trades. Other benefits include:
> commission-free stock trading by fintech companies such as Robinhood, Chime, Square and Revolut in the United States;
> automated advisors enabled by AI and machine learning;
> simpler and faster onboarding and anti-money laundering (AML)/know your customer (KYC) compliance; and
> improved customer experience.
Further future improvements in the blockchain technology are needed to address the gap between the demand in the trade process activities where high trading volume and high speed of trades are critical, and the current capabilities of the blockchain technology.
Then, trade processes can be automated by using tokens (the tokenised version of the stock) that are cryptographically secured and by using self-enforcing smart contracts.
This will enable opportunities such as higher liquidity, 24/7 trades and access to stock markets globally.
In post-trade process activities, once data is recorded in every copy of the distributed ledgers in blockchain resulting in better record-keeping, data is more transparent and renders the costly and time-consuming reconciliation to individual books unnecessary.
More efficient and effective clearing and settlement will reduce transactional costs and involved risks such as settlement and counterparty risks.
Challenges to the acceptance and adoption of fintech, blockchain and AI in financial markets are interoperability among the many differing blockchains and relevant regulatory uncertainty.
Fintech and blockchain are relatively new and growing rapidly. Regulators are playing catching up in introducing regulations to prevent abuse and to protect the public.
Access to relevant talents, and attracting the right people with necessary skills, is another commonly reported challenge.The inevitable future introduction of central bank digital currency (CBDC), business cost pressures, customer service expectations and familiarity and comfort to blockchain by various parties will further increase the use cases and the value of fintech and blockchain.
It is fascinating how new technologies and innovations are positively impacting and changing the way businesses operate.
Invest in yourself and in your future – consider enrolling in an undergraduate or a postgraduate programme to explore and enhance your knowledge and skills.
SU LEE SENG
Department of Information Systems
UTAR Faculty of Information and Communication Technology
DON'T MISS IT
Title: Financial Technology (Fintech) and the Impact of Blockchain on Financial Markets
Jan 20 (10am – 11am)
> Delivery method: Microsoft Teams.
> Discussion topics: Fintech and blockchain technology, the current global impact on financial services and societies, including the impact of fintech and blockchain on financial markets.
> Speaker: Su Lee Seng has vast experience in information technology (IT) and business consulting, as well as Enterprise Systems Implementation globally. He trains IT and business students on fintech at the Department of Information Systems at UTAR’s Faculty of Information and Communication Technology. His area of expertise is Artificial Intelligence and blockchain in business, business analytics, fintech, and information systems consulting.