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The Legal 500 EMEA

FinTech Metamorphosis

Fintech

The umbrella phrase “FinTech” (financial technology) refers to software, mobile applications, and other technologies developed to enhance and automate conventional forms of finance for both people and businesses.

FinTech encompasses a wide range of products, from simple mobile payment apps to intricate blockchain networks hosting encrypted transactions.

When we say “financial services”, it is referred to Artificial intelligence, Blockchain, Cloud computing, and big data are regarded as the “ABCD” (four key areas) of FinTech.

FinTech prehistory

Aeons ago, Fintech innovated long dates back to the 1860s. Understanding the history and the development of fintech will make it simpler to predict the future of these innovative and disruptive technologies.

The origins of fintech can be traced back to the 1860s by “Giovanni Caselli” who developed the pantelegraph, that considered the beginning of financial innovation.

By sending and receiving information via telegraph wires, the pantelegraph was primarily used to confirm signatures in financial transactions. It took over 108 seconds for a sheet of paper with about 25 printed words to communicate during this laborious and delayed verification process.

Fintech from 1918 to 1970

The Federal Reserve Banks of the United States developed a way to transfer money electronically as the following early fintech innovation. The Federal Reserve Wire Network, the previous name for this technology, has been replaced by Fedwire.

The Morse code-based technology was utilized as a real-time gross settlement cash transfer system up to the 1970s, linking all 12 Reserve Banks in the nation. The method changed from telegraphy to telex and then to computer operations and exclusive communication networks during this decade.

Messages were safely transmitted from one teleprinter to another across the global Telex network of teleprinters.

Fintech in modern era

The 1980s saw two significant advancements in fintech that had an impact on the wealth management industry. E-trading and internet banking fell under this category.

We quickly grab our phones, launch an app, and sign into our online banking accounts. The transaction process wasn’t this simply a few decades ago, but things were rapidly shifting.

Due to internet banking’s popularity in the United Kingdom, most U.S. banks launched their initial transactional websites for internet banking in the late 1990s.

2009 saw the debut of Bitcoin. Investors believe that Bitcoin was the first cryptocurrency, paving the way for a completely new way of exchanging currencies.

Google Pay Send, formerly known as Google Wallet, was created and launched in 2011. It made it possible for smartphone owners with Near-Field Communication (NFC) chips to make purchases using their phones by tapping them against a reader at the cash register rather than using credit cards or cash.

With the help of the simple-to-use app Google Pay, you can now pay individuals or businesses while also storing your credit cards and accounts on your phone.

Blockchain investment is anticipated to increase to $15.9 billion globally in 2023, up from just $1.5 billion in 2018, which is a 10-fold increase. The adoption of fintech is evidence of the financial sector’s readiness to change quickly and its desire to do so as well.

Is fintech safe?

Engaging with Fintech, many of which are still completely unregulated, especially in the Wild West world of cryptocurrencies and blockchain technologies, might result in unintended or unexpected danger exposure.

Till now, there has been no agreement on the precise level of security offered by all fintech products. Given the scope and size of fintech proliferation, it will likely be difficult to find such guarantees.

However, consumers would be prudent to tread cautiously: In the E&Y poll, 71% of fintech adopters agreed with the statement, “I worry about the security of my personal data when dealing with companies online.”

Distributed ledger technology (DLT), which underpins blockchains and enables cryptocurrencies, is possibly the most important of all the innovations that have had an impact on financial services. In the future, though, less well-known developing technologies might have much greater impacts.

The following are some of the most fascinating:

  • Internet of things, an excellent illustration of this are ATMs that can determine how many people are waiting in line, as well as sensors that allow for contactless transactions.
  • Augmented reality and virtual reality, one potential application for these new techs is virtual stock trading.
  • Smart contracts, contracts with autonomous execution capabilities can boost security, boost productivity, and minimize transaction costs.
  • Bots, the systems that automate repetitive processes, sometimes referred to as robotic process automation, can relieve people of routine jobs and free them up to concentrate on more worthwhile endeavors.
  • Voice-enabled payments, people can check accounts, transfer money, and complete transactions on their smartphones utilizing software that recognizes speech by speaking.
  • P2P lending systems, such as Prosper Funding LLC, Lending Club, and Upstart, enable customers and small business owners to borrow more money from a variety of people who provide micro loans directly to them.

Fintech themes

The word “fintech,” which first appeared in the 21st century, was initially used to refer to the technology used in the back-end systems of well-established financial institutions.

But since then, the focus has shifted to include services that are more focused on the needs of the user, which has led to a more consumer-focused definition.

Education, retail banking, charitable fundraising, investment management, and others are just a few of the industries and sectors that now fall under the umbrella of fintech. Fintech also covers the creation and application of digital currencies like Bitcoin.

The traditional international banking sector, with its multi-trillion-dollar market capitalization, continues to be where the main money is, even though that fintech sector may garner the majority of headlines.

How do fintech businesses generate revenue?

According to their area of expertise, Fintech generates revenue in various ways. Fintechs in the banking industry, for instance, may profit from fees, loan interest, and sales of financial products.

Investment applications may request brokerage fees, use the payment for order flow (PFOF), or take a cut of the assets under management (AUM). In addition to charging for extras like early withdrawals or credit card use, payment apps may collect interest on cash sums.

Fintech in Egypt

Similar to other markets, the Central Bank of Egypt must approve all banking activities. For non-banking financial services including mortgage lending, leasing, insurance, and microfinance, there are many different regulatory frameworks in place, but starting a fintech business is not simple.

The Egyptian government and Central Bank are backing fintech businesses to aid in the transition to a cashless economy because they recognize how important this step is. To promote the usage of mobile wallets, they have even run national TV advertising.

The Central Bank of Egypt published new rules for mobile cashless transactions in 2016, allowing users to send money and pay bills. Fintech companies can collaborate with banks to supply the technology foundation even if only licensed banks are permitted to offer mobile wallets.

A National Payment Council was also established in 2017 to promote the transition to cashless transactions.

Mobile wallets and payment service providers, both of which have been widely adopted by banks and telecom companies, are the most sophisticated fintech players in the Egyptian market.

The payments category features well-known players like Fawry, which facilitates payments to numerous business partners, including mobile carriers, utility providers, and government sectors.

7aweshly gives unbanked users a way to save little by little through micro-savings. Through their crowdfunding platforms, two regional players Shekra and Yomken provide several opportunities to promote regional innovation.

MoneyFellows digitizes the traditional money circle local savings concept in the financing area. Carsurance offers insurance quotations under the heading of insurance. Lastly, Enotta provides tools for cash management for businesses under the financial management category.