We look at the debate as to whether fintech describes collaboration or disruption within the financial services industry.

When looking at news related to the financial services industry, certain buzzwords are used frequently. There are often articles about new partnerships looking to launch a specific product or service, with an emphasis on collaboration. On the other hand, there are reports of records being broken, companies head-to-head with similar products, and brands labelled as ‘disruptors’.

Is the term ‘fintech’ about collaboration or disruption? Does it need to be one of the other? This blog takes a look at the history of ‘fintech’ and how we can understand this industry as either a revolution or a reformation.

The History of the term ‘Fintech’

It has proven difficult for the industry to pin down the origin of the term ‘Fintech’. The Merriam-Webster dictionary places its first use as far back as 1971, defined as technology used to improve financial systems. According to Chris Skinner, author of the Finanser.com and industry commentator, it originated with the founding of Zopa, peer to peer lending platform in 2005.

Financial institutions have utilised technological advancements to improve operations and systems for a long time. Online bank accounts launched with Wells Fargo in 1995 and Confinity’s first product PayPal was launched in 1999, marking a dramatic shift towards online payment options used today. The first cryptocurrencies started to emerge in the 2000s as well with the development of Bitcoin that opened up a range of possibilities for finance.

There is a general consensus that the advent of the fintech industry as it is known today came with the global economic crash of 2008. This recession saw traditional banks struggle to meet the demands of consumers and so fintech companies used innovative tech to improve services for small sections of a user’s financial life. Rather than building direct competitors, fintech became synonymous with smaller, user-friendly solutions to pain points.

Since then, the popularity of legacy fintech companies has resulted in more direct challenges to traditional banking systems and fintech has developed into an industry in its own right. The term encompasses a wide range of functions including consumer-focussed financial assistance, software to improve banking institutions’ operations, and distributing financial solutions to other companies.

Collaboration vs. Disruption

Definitions of fintech today tend to focus on either disruption or collaboration. For some, fintech is about using tech to improve the financial industry as a whole. For others, fintech looks to challenge traditional finance and carve a new space in users’ financial lives.

Perhaps it is the fact that mainstream fintech launched at a time when traditional institutions were struggling that has given the sector a reputation for disruption. Companies are often described as disruptors when they are offering innovative services that change legacy systems – so much so that disruption has almost become synonymous with success.

However, it appears the industry is now in a new era of fintech innovation. While companies may have previously been motivated by competition with traditional institutions, today more and more partnerships between banks and fintechs are emerging that place the users’ needs before any supposed sector rivalries. At mmob we see ourselves, instead of disruptors, as facilitators of collaboration.

We put the question to a poll on our LinkedIn and Twitter pages – 58% of respondents think of fintech as collaboration, while 42% see it as disruption. Many of the respondents work within the fintech or financial services industry, demonstrating how the industry contains both sides of the debate but favours collaboration.

So, how can we understand the term fintech? Perhaps it does not need to be only collaboration or disruption, but a mixture of both; after all, different waves of fintech innovation have changed which side they emphasise. Fintech emerged largely due to the limitations of traditional systems, and both disruption and collaboration can be used to improve financial services for the benefit of the whole system.

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