The field known as fintech was pioneered by startups
dreaming of toppling financial giants and democratizing access to credit. But
now many of those behemoths have joined in. JPMorgan Chase & Co. has a
history running back to the days of Alexander Hamilton, but it’s also got
50,000 employees working on its technology. It’s not just banking giants
getting in on the fun. Recent steps by Walmart Inc., the world’s largest
retailer, to create a fintech division has sent shivers across Wall Street. In
another sign of fintech’s maturity, regulators are doing as much to shape its
progress as coders or dreamers. Take Ant Group Co.’s plans for a public
offering in November that was projected to value the app, which moves money for
1.3 billion people, at about $280 billion. That was before the Chinese
government stepped in and derailed the listing.
1. What is fintech?
An effort to revolutionize financial services by extending
them to smartphones and applying new technologies such as artificial
intelligence. It encompasses a wide range of areas from mobile payments to
cryptocurrencies. LendingClub Corp. helped create a new field of
person-to-person lending, initially as a way to match up small investors and
small borrowers, while services such as Betterment and Wealthfront sought to
make wealth management accessible to more people through “robo-advisers,”
portfolio management programs available for a fraction of what a human
financial adviser might charge. Meanwhile, payment apps like Revolut in the
U.K. made sending money overseas faster and cheaper.
2. How did it develop?
Banks have been big users of computers since the 1960s, but
it wasn’t until the 1990s that Wells Fargo & Co. and other institutions
began offering online services to their customers. The field exploded after
2008, when the spread of smartphones and the global financial crisis created
new opportunities, as big banks both lost consumers’ trust and pulled back on
making loans to smaller customers, opening the door for upstarts to offer up
their services instead.
3. Where has it taken off?
Almost everywhere, but with sharp regional variations.
• In China, Ant’s Alipay and WeChat Pay, offered by Tencent
Holdings Ltd., handle more than 80% of mobile payment transactions. Ant also
offers insurance and other financial services. Alibaba founder Jack Ma had
described its future as an open platform for fintech apps, although that has
been clouded by new regulations restricting the growth of the sector.
• In Europe and the U.K., new laws require banks to open up
their systems to allow consumers to share their financial data with outside
apps and services. The move drove a wave of services that allow consumers to
use apps without having to shift their money out of their bank.
• In many ways, the fintech landscape in the U.S. is still
dominated by traditional banks and well-established large technology companies.
Venmo, the popular person-to-person payments app, is owned by PayPal Holdings
Inc., a company founded more than 20 years ago. Now, it’s being rivaled by
Zelle, a payments platform created by a company owned by seven of the nation’s
largest banks. Goldman Sachs Group Inc. launched Marcus, an online bank aimed
at attracting the masses. But two top executives who had set up Marcus were
lured away by Walmart, generating speculation about its effort to become a one-stop
shop for consumers’ financial needs.
• In Africa and other emerging markets, big
telecommunications companies have dominated the field, as companies like
M-Pesa, founded by a Kenyan partner of Vodafone Group Plc, signed up large
swaths of the population that never had a bank account but carry a mobile
phone.
4. What are the downsides?
New approaches bring new pitfalls. Online peer-to-peer
lending boomed with little oversight in China until collapsing in a swirl of
fraud and defaults in 2018, leaving investors with more than 800 billion yuan
($121 billion) in unpaid debt. Many fintech companies are replacing traditional
credit evaluations with decisions driven by algorithms — a process that
research has shown can produce results tainted by racial or gender bias. While
consumers may gain from new efficiencies, by one estimate as many as 30% of
financial jobs could disappear. Fintech companies themselves have found that
they’re having to spend more than they expected to meet traditional regulatory
requirements, like making sure their systems don’t fall prey to fraudsters and
aren’t used by terrorists to launder money.
5. What else are regulators looking at?
The Chinese government has begun to roll out new requirements
and restrictions that appear to signal that the unusual freedom Ant and Tencent
had enjoyed has come to an end. To the U.S., the potential expansion of Ant and
Tencent around the globe is a national security issue akin to the use of
Chinese-made telecom equipment in new mobile phone networks. In both cases,
American officials have raised the question of whether data could be
vulnerable. It’s not just Chinese fintech giants that has the U.S. worried. The
Department of Justice in November sued Visa Inc. to block its planned acquisition
of the data aggregator Plaid Inc., saying it would threaten competition in
online debit card payments. The two eventually called off the deal.
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