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Fintech: A Tsunami in the world of financial services

Fintech: A Tsunami in the world of financial services

Fintech: A Tsunami in the world of financial services

The opportunity to see and hear the word “Fin Tech” has increased recently; do you know what it is?

FinTech was born in the United States in the 2010s, and overseas, there were many efforts to create new services by startups and many financial institutions. In Japan, the Financial Services Agency's “Financial Report” has been attracting attention, with reference to FinTech.

About FinTech

The term FinTech is a coined word that combines “Finance” and “Technology”, and is innovative in the fields of finance, payment, and finance using ICT (Information and Communication Technology). It refers to movement and service.

With the advent of FinTech, there has been a big wave of venture companies entering the market due to services that have been handled exclusively by specialized institutions or previously not provided by financial institutions. In recent years, with the spread of smartphones and the expansion of electronic commerce on the Internet, consumer needs have changed to demand faster and cheaper services. "Company" has appeared.

Fintech companies are companies that provide innovative financial services using FinTech. Some examples are listed below, but FinTech is already being used in familiar places.

Main fintech examples

  • Mobile payment and remittance via smartphone
  • A cryptocurrency (virtual currency)
  • Online financing
  • Personal financial management (PFM)
  • Crowdfunding
  • Investment support
  • Management and business support

Services are being developed for a wide range of genres such as payment, remittance, financing, and asset management. So-called SaaS vendors develop and bring various fintech solutions to the market, forming a certain size market. 

Overseas, lending, online payment, robot advisors, and other infrastructure such as P2P overseas remittance have appeared in Europe. In Japan, however, mainly household account book software for individuals and business owners, accounting software for SMEs, etc. Its feature is that the market size has expanded and there are many start-up companies dealing with households and asset management.

Cloud service lowers implementation hurdles & cost

Currently various fintech services are provided. In particular, services for individuals are attracting attention, as they offer unprecedented UI improvements and new forms of payment services.

The technical infrastructure that supports fintech is: “API”, “Blockchain”, and “AI - Artificial Intelligence”.

API – Abbreviation for “Application Program Interface”. This is a technology for simplifying the exchange of data between software and is necessary for linking with bank accounts and payment information such as cloud accounting and household account book applications.

Blockchain – A distributed record management technology that makes it difficult to alter data by applying encryption technology and P2P network technology. Contrast with the centralized management system.

AI – Applied to robot advisors in the investment field and technologies for automating loan screening.

These are often provided as cloud services, which is one of the reasons why fintech services for individuals and small businesses are supported. Building a full-fledged system requires a huge amount of money, but a cloud service can be easily introduced from a small and inexpensive step. This makes it easier for service providers to start new services with a small investment, making it easier to bring them to market.

FinTech's cloud services offer significant benefits for both the users and service providers.

FinTech spreads to long-established financial institutions

FinTech has begun to introduce various services into the market, mainly startup companies, but from a global perspective, countries such as China and African countries where payments by FinTech are becoming mainstream are emerging, while Japan Then, the fact is that the introduction has not yet progressed.

Closely related to FinTech is a “cashless” system that uses credit cards and electronic money to make payments without using cash. There are many people who use credit cards for online shopping and so on. However, taking cashless as an example, the cashless ratio in Japan is only 18.4%. This may be due to issues such as the traditional tendency of the Japanese to be “cash-based” and the fact that cashless balances are difficult to imagine. Another reason may be that so-called well-established financial institutions such as banks have not worked very aggressively.

However, recently, the movement of banks to establish new companies and collaborate with venture companies has been conspicuous in order to incorporate FinTech. The so-called “MUFG shock”, which became a hot topic in 2017, is a new memory that megabanks have been able to respond to in the fintech sector quickly.

Cloud services that support Fintech

This is the event that Mitsubishi UFJ Financial Group (MUFG) decided to renovate its internal system to the cloud system that stores and uses the information on the Internet for the first time as a major bank and signed a contract with Amazon.

You may not feel a sense of incongruity when you hear that the system is clouded, but there are several reasons why it is called the “MUFG shock”. It has been pointed out before that megabank operations are obsolete globally in terms of services, and there is a need to innovate with IT from the perspective of expanding services and reducing costs. That is one thing.

The other is that cloud services have been adopted for financial systems that have been said to be extremely mission-critical systems.

Financial institution IT systems are required to be huge and highly stable and the maintenance and operation of these systems are enormous. However, it can be said that the “tide” of corporate cloud adoption has changed as cloud services can provide the security that financial institutions are satisfied with.

AWS has released a so-called FISC-compliant reference, and its adoption in the financial industry has been spreading globally. However, the adoption of megabanks in Japan was a surprise. This is expected to accelerate the adoption of the cloud at other financial institutions.

Conclusion

FinTech is a highly relevant topic in the Information Management and financial services field. FinTech can be seen as the umbrella concept approach for disruptive and incremental innovations in the financial services industry. It changes the core of the financial service industry using technical developments. To conclude, FinTech creates a large impact on the financial services industry, both in the present and future


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