History 101: How the Fintech Industry Came to Be

Financial technology has come a long way…

Ever wonder how the worlds of finances and technology came together to form what is known today as Fintech?
To enable improved security of financial transactions, upgraded payments systems, optimized customer service, and expanded scope, Fintech evolved over generations.

Let’s take a deep dive into the history of Fintech to understand how the industry came to be… and what the future may have in store.

The Birth of Fintech (Fintech 1.0)

Fintech was first born in 1886 when initial transatlantic communication technology was introduced to the public: the telegraph, railways, and steamships. These allowed for (what was then considered) rapid transmission of financial information across international borders.

A period of fierce financial globalization ensued.
The transatlantic cable was developed in 1866 and Fedwire, the first electronic fund transfer system, first went public in the US in 1918. These innovations relied on the now-outdated telegraph and Morse code.

The first cashless payment technology was developed during this period as well: the credit card. Diner’s Club and American Express launched their own credit cards in the 1950s, pushing fintech out of its infancy and into its “adolescence.”

Fintech 2.0

Once a solid foundation for digital payments was laid, the history of Fintech shifted its focus onto early-stage digital banking. The innovation of the world’s first ATM and handheld calculator in the late 1960s led to a marked shift from analog to digital technology use. NASDAQ, SWIFT, and the first bank mainframe computers were born, opening the doors to online payments and banking options.

As the years went on and the internet grew both in capabilities and popularity, the IT industry and financial sector both began to boom. The development of Software as a Service (SaaS) enabled global trading platforms to emerge. By the early 2000s banking services were fully digitalized.

Fintech 3.0 and Beyond

In 2008, a global financial crisis hit. As a result, the banking industry lost its good name and many financial professionals found themselves unemployed. That being said, this period was one of promise and flourishing for a particular demographic: startups.

New players emerged, leading to a push for new, more secure, and transparent digital payment options. As a result, the first cryptocurrency, Bitcoin, was launched into the Digi-verse. In addition, as the smartphone continues to penetrate the mass market, doors continue to open for innovative Fintech. Smart wallets such as Google Wallet and Apple pay are prime examples.

Fintech 3.5, the most recent generation of Fintech development, has largely focused on a shift in consumer behavior and demands. This, coupled with a surge in internet use across the globe and an evolution in how the internet is accessed has positioned machine learning and open banking as the next “Big Thing.” What will come next? Only time will tell…

Bottom Line

Despite many hurdles and crises along the way, including the “Great Crypto Crash of 2018”, the history of Fintech is rich and teeming with growth. The introduction of new technologies only benefits the banking industry – and its customers. Together, tech and finance are creating a more holistic, efficient, and customer-centric service experience.

Fintech is here to stay. While we don’t know exactly what the future holds, if history is any indication, it’s going to be an exciting, disruptive ride.