1. Banking Regulation and Fintech
Challenges
Felix I. Lessambo
Fordham University, New Britain, CT, USA
Felix I. Lessambo
Email: fgrlessambo@aol.com
1.1 General
The term “fintech” has become a common way to describe any business
that uses technology to conduct financial transactions. FinTech is often seen
today as the new marriage of financial services and information technology.
The term “fintech” was coined by Citigroup in the early 1990s and referred
to the “Financial Services Technology Consortium,” a project initiated by
Citigroup to facilitate technological cooperation efforts.
The term FinTech
is not confined to specific sectors or business models lending, but instead
covers the entire scope of services and products traditionally provided by
the financial services industry: banking, insurance, loans, personal finance,
electronic payments, Loans, venture capital, wealth management, etc. The
Fintech industry is blossoming. While the global financial sector is
expected to be worth US$26.5 trillion in 2022 with a CAGR of 6%, the
fintech community saw dramatic growth in 2021 with 43 new fintech
unicorns now worth over US$187 billion (as of the first half of 2019). That
is slightly over 1% of the global financial industry.
FinTech has the
potential to fundamentally transform the financial landscape, provide
consumers with a greater variety of financial products at competitive prices,
and help financial institutions become more efficient. The rapid and
transformational changes brought on by FinTech need to be monitored and
evaluated so that regulators and society can keep up with the underlying
technological and entrepreneurial flux. For a sustainable business
ecosystem, FinTechs need to bridge the digital divide and promote equitable
and broad-based customer participation. The financial system relies on trust
—losing sight of risks to the stability and integrity of the financial system
could jeopardize that trust. FinTech is generally described as an industry
that uses technology to make financial systems and the delivery of financial
services more efficient. It “technologically enabled financial innovation that
could result in new business models, applications, processes or products
with an associated material effect on financial markets and institutions and
the provision of financial services.”
The World Bank and the IMF use the term “fintech” to describe
“advances in technology that have the potential to transform the provision
of financial services spurring the development of new business models,
applications, processes, and products.”
1.2 Evolution of Fintech
The history and evolution of fintech are much broader and more inclusive
than that. In fact, fintech can be traced all the way back to—not the Internet,
not the 2008 financial crisis—but to the 1850s, shortly before the Civil War.
The term only gained traction in the twenty-first century, but in reality, it
has driven how people interact with their money for well over a century.
The most wave of fintech can be traced back to the late nineteenth century
when money could be moved around by telegrams and Morse code—
though this probably would not get many investors excited today. That
journey started several decades before one could download an app on a
phone and make a transaction with the push of a button. According to a
paper by Arneris, Barberis, and Ross,
fintech can be split into a number of
different eras. Each of these three (and a half…) eras saw a distinct level of
differentiation in the market that led to changes in the way consumers
interacted with their money.
1.2.1 Fintech 1.0 (1886–1967)
The first period of fintech 1.0 began when the early financial globalization
happened. This first wave involved the building of the infrastructure that
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