‘Fintech’ rapidly became one of those terms that we all use out of habit — often without having a practical recollection where it actually came from, when it got so mainsteam or simply why it exists in our lives in the first place. Let us then, take a look back at the birth of the term, remembering how this rather young phenomenon took over the contemporary global discourse.
‘Fintech’ was born in Hangzhou during the Alibaba dynasty around a decade ago. Her parents, ‘Finance’ and ‘Technology’ met during the 2008 Global Financial Crisis and immediately knew they were made for each other. When Fintech was born, she could only do basic tasks, just like any other toddler — though, she could recognise a QR code at a very young age! She has grown to become a trailblazing teenager since then, and now having travelled all around the world, she has influenced business models in every country she visited. Due to her young age, she seems to be one of the least suspectible to be affected from the COVID-19 pandemic — although one must never be complacent and be too uncautious during these times.
In this brief glossary we lay out five key procedures and business models that Fintech touched, influenced or even created from scratch. It should be a handy go-to list for anyone who is curiously reading into what she will be up to in the next decade.
Neobanks aka Challenger Banks
Diving right into the financial industry space, we see how Fintech created a whole new way of doing things in the last decade. Banks used to be called just banks till recently — no one attached an adjective in front of them to categorise whether or not they were old or new. Well that is the past. Now most are called ‘traditional’ banks. As more and more young and fresh ‘neobanks’ enter the demography of banking — some banks are now being seen as ‘boomers’. Simply put, a neobank is a complete, 100%, tip to toe, digital bank that reaches customers only through mobile apps and personal computer platform. No physical ATMs, no branches, no kiosks — literally nothing physical transpires between them and their clients. Not operating traditional physical branch networks lets them be free from the legacy costs of traditional banking (literally the brick and mortar — which tend to cost quite a bit once you start paying rent to keep them in place). Lowering costs for themselves and customers and hence being able to expand banking services to the unbanked or underbanked (underbanked, as in, you have toxic relationship with a old, grumpy bank that is behaving terrible to you) are the two key reasons for their birth. Neobanks also have an alibi of ‘challenger banks’ which they use within different contexts (some say challenger banks are the ones which have a license so they can do more things) — but really, they are pretty much the same beasts.
‘Baas’ was a scary name to be associated with in the Middle East till quite recently (Google it if you are unaware and curious) — but now it is in fashion with much more refreshing connotations. BaaS is short for ‘Banking as a Service’, a very exciting line of business, especially trending in financial hubs like Singapore and London. Indeed the ‘…as-a-Service’ model is simply the way to go these days, regardless of what you are providing. Millenials are not fond of buying and settling — we rather like and subscribe — and unfollow once we are bored. It may seem we are too spoiled for choice and have too little attention spans, but it also make a lot of good sense in terms of business as well. ‘…as-a-Service’ models, be it ‘SaaS’ (software), ‘Iaas’(infrastructure) or ‘MaaS’ (mobility), allow exactly that kind of flexibility. You do not have to build a service or buy a massive pack of it, you simply subscribe to the particular features you need within its repertoire. In the case of BaaS, you essentially pay a rent to have an in-house banking system in your company, choosing which capabilities you need from a library of fintech features BaaS companies offer you. One could think of ‘as-a-Service’ companies like bakeries — sure, it is enjoyable cook a nice sourdough bread at home once in a while, but good luck being able to to do that everyday, in ten different flavours and sizes. Having a bakery nearby allows us to access more varieties for less cost — best of both worlds! All we have to do is pick, choose and pay — just as the customers of the up and coming BaaS companies.
APIs is one of those abbreviations that practically is never interchangeably used as its extended form. Just like NBA. You probably never say “I watched a National Basketball Association game last night” — NBA is so rarely referred to as such, that it might actually be confusing if you blurt out such a sentence. In the fintech space, the term ‘APIs’ tend to have a similar usage. You would never heard anyone call them ‘Application Programming Interface’ in a full sentence. It will create more confusion than anything else. Just like you do not suddenly start calling your friend Bob his full name Robert, we simply do not call APIs, Application Programming Interfaces. Ok, you get the point. APIs are essentially shared stacks of software, which define and govern interactions between multiple financial intermediaries (such as banks and neobanks). APIs are the bread and butter of developers, in building fintech applications for example, APIs abstract (simplify, generalise) the key implementations of a product, exposing only the objects or actions which the developer needs. It keeps everyone working on a particular project on the same page, allowing a clean, neat way maintaining all that valuable code. What makes API a crucial term to know when talking about fintech is its role in ‘open banking’. The availability of open banking APIs (essentially banks communicating with each other through stacks of code) enable developers from all over the world to build applications and services around financial institutions. This in turn, creates greater financial transparency, a wider set of features and ultimately a better set of options for all.
QR codes are an older cousin of Fintech. Born in Japan during the early 1990s, the QR code worked with automotive part manufacturers there for the better chunk of his illustrous career. The QR code helped out the company Denso Wave, where his father Masahiro Hara worked, in their tedious packaging and archival work. The QR code rapidly became a favourite in the company, allowing the workers to find intricate automotive parts way easier than using traditional barcodes — indeed, it added a new dimension the whole procedure! Later on, as the Japanese market cooled off, the QR code started looking for new opportunities around the world. For a decade or so, it went on taking up odd jobs here and there but never made found mainstream success. It was only when Fintech was born in 2008 to the Alibaba dynasty of China, QR codes found a new home in this emerging technology kingdom. Now, the QR code is perhaps China’s favourite tech symbol and perhaps its most well known intellectual export. Renting a bike, paying the taxi, buying a train ticket, booking a hotel, grabbing movie tickets, topping up mobile phones, paying utility bills, ordering street food and most prominently paying for groceries in stores are now done (pretty much) only by QR codes in China. In the Middle Kingdom and more recently in countries like South Korea and Singapore, a good chunk of the population no longer carry much cash — depending mostly on their phone’s ability to recognise a QR code to get around their usual routines. That is how famous QR codes are in East Asia — no wonder it is ripe for becoming a hit in the West as well.
It is imperative for all of us to know who we are dealing with. So much so that our evolution always moved in such a way that favours this particular skill. We are great at catching face expressions, following eyeball movements and noticing micro gestures — things most other mammals do not care much about (as far as we know). Financial instutions are no different. Any fintech is inclined to know their customer — be it individuals who subscribe to their services or businesses which tap into their APIs. Fintechs tend to rely less on facial expressions (although many are fond of asking for a selfie in a sign up process, just to make sure) and more on personal documentation to verify that people who they are dealing with have a clean slate.
No fintech wants to get caught up in a money laundering deal (God forbid!) or any other shady transaction, therefore each and every up and coming technology company out there is liable of ensuring they have strong controls in place for ensuring the legitimacy of their user base. That is practically what ‘KYC’ is all about: ‘knowing your customer’ — simple, yet essential to any fintech business.