14 Nov 2017

FinTech & Brazil – from evolution to opportunity!


FinTech and Brazil – PART 1

FinTech is one of the hottest topics at the moment in the business world and the basis for a 40-billion-dollar industry. The popular term seems to be on everyone’s lips, but what does FinTech actually mean, and what is it exactly? In this blog series, we are going to examine how FinTech evolved and what it means for the Brazilian economy today. Today’s blog will explore how Fintech came about and next week we will discuss in detail the repercussions for Brazil.

What is FinTech?

FinTech is a contraction of the words “financial technology”, and the term has been used to describe all kinds of innovative technological services emerging in the financial sector of the 21st century. In today’s digitized world, society is producing new and exciting inventions on a daily basis, and nowadays, new financial technology is enjoying great success. FinTech is currently booming and is apparently a 40-billion-dollar industry, and catching the attention of the world’s top investors.[1] But why is this particular area so popular, when the digital economy is producing so many other exciting innovative and disruptive services?

The history of FinTech

First of all, it seems to be a common mistake to regard FinTech as something that has only existed for the past 10 years. Although that the term sounds super modern, it does not only revolve around the most recent emerging services, but should actually be applied to every invention that has to do with financial technology. So, anything from the first ATM invented by Barclays in 1963 to Apple Pay being integrated in our lives these days in recent years can be regarded as FinTech. One of the very first inventions relating to technology in the financial sector was the pantelegraph, invented by Giovanni Caselli in 1865, used to verify signatures in banking transactions.[2] In the late 1800s, consumers and merchants began exchanging goods using credit for the first time in the form of charge plates and credit coins, which later evolved into the credit cards and cash of today that modern technology is in the process of replacing with virtual currency like Bitcoin. In 1918, we started transferring funds using a Morse code system, and around 40 years later in 1960, the first electronic system to provide stock market quotations was brought to life. Again in 1983, the industry was gifted with a revolutionizing invention, namely online banking, which set the scene for digital payments and online shopping. Like almost every other successful invention, these innovative contributions to the financial sector facilitated many important processes in the financial ecosystem, and hereby made life easier for both clients, banks, stockbrokers and basically every player in the financial world. Inventions such as the pantelegraph contributed to developing security, which is an essential aspect when dealing with high amounts of money, whereas inventions such as online banking connected the global world in a way which helped to centralize the financial industry. All of these inventions were different and disrupted the financial sector in their own way, but they are all similar as they fit in the category of FinTech.

Fintech today

As the history clearly shows, the financial sector has been disrupted numerous times throughout the last 150 years, but it is no coincidence that the area of financial technology has been given a sexy name like “FinTech” and enjoyed an extreme rise of popularity recently. In October 2008, after the Lehmann Brother’s fall, the financial crisis struck, and every financial institution was under a massive pressure. Finding themselves in a crisis, banks were suddenly compelled to change their prior mind-set, act differently, and become more open to innovative concepts and ideas.[3] Digitizing processes is cost-effective, and the FinTech companies offering exactly this service suddenly became attractive to the banks, as they started lacking funds and had to think differently. The recent advances in technology, the rise of social media and the 2008 financial crisis have undoubtedly paved the way for FinTech’s rapid development, but the emergence of modern FinTech has not been a bed of roses. In the beginning, financial technologies like Bitcoin were perceived with serious scepticism by society fearing that modern FinTech would eclipse banking as we know it. Many new inventions can seem scary, but despite initial challenges and fears, financial institutions implementing new technologies

have seen tangible results like the enhancement of infrastructure, cost cutting and increased customer satisfaction. Fintech companies are not ruining banking, but rather improving the industry by collaborating with the established banking system, and the rise of financial technology shows this collaboration is a huge win-win situation. Banks have money and need innovative technologies to improve their business. Emerging businesses in the shape of FinTech start-ups have innovative ideas to improve banking, but lack funds to realize their projects. By collaborating, FinTech companies grow and the financial institutions stay relevant by increasing effectivity and attracting younger customers.

FinTech is inevitably disrupting the financial industry, and it is going to be important to follow the rapid evolution of financial technology. Nowadays costumers enjoy being able to discuss financial decisions with their personal advisor in the bank, but the emergence of Chatbots and artificial intelligence indicates that we might be advised by robots in the future. To many people this seems very strange and even maybe scary, but the truth is that society was very sceptical of using the credit card back in the day. We do not know what the future holds for FinTech, but considering the economic power that the industry has, we are definitely going to feel the impact.

Increasingly countries are embracing new financial models, and especially one country in South America seems to be making a name for itself on the international stage – Brazil. Did you know that in Brazil, 50 million people are underbanked, i.e. they do not enjoy access to the same range of services that we may take for granted in the US or Europe? And that 5 Brazilian banks hold 84% of total loans in the country? Keep an eye out for part two of our blog series if you want to know why the next FinTech goldmine might be situated in the country of carnival and samba!

[1] (PWC, 2017)

[2] (New York Times, 2016)

[3] (Forbes, 2015)

Maximum impact and resonance in Brazil, one of the most important economies in the world

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