Late last year, we posted a blog on global supply chain trends, which included an excerpt from Tom Friedman’s book, “The World is Flat”. Reflecting on how technology has transformed the way we do business today, he wrote: “It is now possible for more people than ever to collaborate and compete in real time with more people on more different kinds of work from more corners of the planet and on a more equal footing than at any previous time in the history of the world.”
You probably won’t find too many people who would argue with his analysis, but it was hard not to recall those words (and others like them) while reading an academic paper titled “The Evolution of FinTech” recently. The paper features a quote from English economist John Keynes, writing in 1920 about the impact of tech for the businessman: “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his door-step; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble.”
While terminology such as “early delivery” was no doubt written with a different cultural context, Mr. Keynes’ words add credibility to the paper’s claim that we can consider FinTech—at least what it calls version “1.0”—to date all the way back to 1866.
Charting “the first age of financial globalization,” the paper cites the world-changing inventions that emerged from the late 19th century in advance of the First World War: “During this period, technology such as the telegraph, railroads, canals and steamships underpinned financial interlinkages across borders, allowing rapid transmission of financial information, transactions and payments around the world.”
Again, the phrase “rapid payments” is purely relative, and may even raise a smile in light of our ongoing appetite to usher in an age of instant payments—a subject we focused on recently.
However, the dramatic advancements of the day gave rise to all that would follow, and the early post-war period was marked by further progress. War-time tech such as code-breaking tools, for example, laid the foundations for computers and calculators just a few decades later. By the 1950s Americans were introduced to credit cards, and by the mid ‘60s, the world had a global telex network and, soon after, the fax machine. Barclays’ deployment of the first ATM machine in 1967, says the paper, marked the beginning of the “modern period of FinTech 1.0.”
Spanning 20 years from 1967-1987, this period is notable for being the phase in which “financial services moved from an analog to a digital industry.” By 1973, SWIFT had been established to facilitate cross-border payments, and more sophisticated regulations governing financial technology were put in place following the collapse of Herstatt Bank in 1974, when it failed to receive payments from New York by ignoring the subtleties of international time zones.
Finally, this latter period of FinTech 1.0 saw a rise in banks’ usage of Information Technology (IT) for their operations. The paper cites an “early example of a form of FinTech innovation” by pointing out that former Solomon Brothers’ employee Michael Bloomberg founded Innovation Market Solutions in 1981. By 1984 his Bloomberg terminals “were in ever-increasing usage among financial institutions,” giving rise to the type of start-up story we might tend to equate with Silicon Valley today.
This theme of banks’ investment in IT recurs throughout The Evolution of FinTech essay, and it’s one we’ll look at more closely in the next two parts of this blog series.
For now though, perhaps it’s worth remembering that although the term “FinTech” feels as new as the stream of start-ups that fall within its definition, innovation in financial services through technology predates each and every one of us!