Fintech vs. the World: Challenges and Trends of 2015 (Part One)

By Madhvi Mavadiya | 11 December 2015

2015 has been the year of fintech. More and more bankers left their jobs in the traditional finance industry for zero-salary careers in the technology sector, while institutions such as Barclays, Santander and UBS started to experiment with blockchain this year. Last year was hailed as a landmark year for fintech and although billions of dollars were spent on this industry in 2014, the sector has grown immensely this year.

Human vs. Robot

In February, it was announced that Japan’s biggest bank, Mitsubishi UFJ, would employ humanoid robots called Nao which were developed by the French Aldebaran Robotics. At the time, the bank was one of many that were investing in non-human resources after the Prime Minister, Shinzo Abe, encouraged the country to use robots to assist financial growth. Chief manager of information technology initiatives at Mitsubishi UFJ, Takuma Nomoto, believed that these machines could replace jobs for humans, but do them better. “Robots can supplement services by performing tasks that our human workers can’t, such as 24-hour banking and multilingual communication.”

This is an attitude that was carried throughout the year 2015 and even altered one of the oldest financial industries, the wealth management space. Deloitte released a report, “Robo-Advisors Capitalising on a growing opportunity”, which explored how 11 leading robo-advisor firms have grown by 65% to retain around $19 billion in assets under management. The report found that due to the accessibility of newer technology, wealth management was simplified and predicted that more asset management and insurance companies would use this form of consulting more so in the future. However, the report warned of some risks. “While this could be an accelerated route-to-market for traditional investors, acquisition has its risks. How the firm is able to effectively integrate the acquired platform within it existing infrastructure will be key.”

The resulting factor of technology taking over the responsibilities of corporate professionals is that they struggled to find work. CEO of the robotic process provider, Automation Anywhere Inc, Mihir Shukla, highlighted that while in the short term, automation does reduce the number of available jobs, in the long run, software can help businesses operate more effectively. “If you think like a human, there are only certain things you can do. When you think like a robot, many things are possible.” Alongside this, 2015 saw many reports of bankers leaving the finance industry for technology jobs with zero-salary jobs because investment firms decided to minimise certain lines of business. Bloomberg believes that this is because there are fewer brokers, the markets are transforming and professionals are considering change and value.

Banking vs. Technology

Banks had a tumultuous relationship with technology this year, but many traditional institutions seemed to embrace blockchain, despite the controversial press that bitcoin received in 2014. What is evident is that the landscape of digital currencies is changing at a rapid rate because this form of currency is more efficient and scalable, according to co-founder of the bitcoin wallet, Blockchain, Nicolas Cary. “This does not mean that banks will become non-existent, I believe that banks serve an important role and will continue to play this role but digital currencies will be just one other method of service that they provide to clients.”

Bank of New York Mellon used blockchain technology to build an application on its internal network which is compliant with the bank’s desire to open source technology, as it helps to identify different ways to make payments easier. It was also reported around the same time that UBS would test the uses of blockchain in an innovation lab created at Level39’s HighGrowth:42. Barclays also started working with Swedish online bitcoin exchange Safello to figure out how it could be implemented in retail banking. Citigroup took a different approach and attempted to solve problems that banks currently face by producing their own currency named CitiCoin, which can be used for cross border transactions.

Many banks experimented with blockchain technology but it questionable as to whether or not it is as revolutionary as the internet, as some fans of cryptocurrency remark. According to a report by Magister Advisors, £1 billion is expected to be invested in blockchain-related projects in the next 24 months. “Blockchain is without question the most significant advancement in enterprise IT in a decade, on a par with big data and machine learning. What JAVA is to the Internet, blockchain is to financial services. We have now reached a fork in the road with bitcoin and blockchain. Bitcoin has proven itself as an established currency. Blockchain, more fundamentally, will become the default global standard distributed ledger for financial transactions,” partner at Magister Advisors, Jeremy Millar, said.

A common (mis)conception this year has been that the US is lagging when it comes to financial technology, regardless of all the advancements taking place at Silicon Valley. The Financial Times reported from a conference organised by CoinDesk where former JPMorgan banker Blythe Masters explained how the US is likely to fall behind in the adoption of blockchain. “There are jurisdictions outside the US where it will happen quicker and that’s because there are markets where there is a vertical integration all the way from the exchange through to the custodian’s custodian if you will,” Masters said. She continued to say that it will probably be seen outside the US before it is seen meaningfully in the US.

Watch out for Fintech vs. the World: Challenges and Trends of 2015 Part Two coming soon…