The History and Future of Financial Technology


The evolution of financial technology (fintech) has been evident since the advent of online banking. With society moving towards a cashless trend, various apps and platforms have emerged to enhance financial management, alongside the establishment of new banks offering smoother user experiences.


However, how far back does the history of fintech extend? Has the recent surge in banking technology been sudden, or has it been a gradual process leading to our current state?


Exploring the origins of fintech can provide insights into its future trajectory. Understanding the underlying factors driving this transformation equips us to anticipate successful products and services in the years ahead.


Before delving into its history, let’s first clarify the concept of fintech.


What is Fintech?

In essence, fintech refers to technology utilized to enhance the provision of financial services. Although the term gained prominence in the 21st century, its influence on how individuals manage their finances extends back well over a century.


While contemporary perceptions of fintech revolve around cryptocurrencies and startup banks, its origins can be traced to the late 19th century when financial transactions could be conducted via telegrams and Morse code – though this historical context might not stir much excitement among investors today.


Nonetheless, the current market offers ample opportunities for investor enthusiasm, with $137.5 billion invested in fintech ventures in 2019, signaling a multitude of companies striving to develop groundbreaking innovations in the field.


Examining the significant milestones in the evolution of fintech, along with contemplating its potential future trajectories, provides insight into the systems and concepts driving this evolution.


The Evolution of Fintech:

As outlined in a paper by Arneris, Barberis & Ross, the history of fintech can be divided into distinct eras, each marked by significant changes in the financial landscape and consumer behavior. Let’s explore these eras:


Fintech 1.0 (1886 – 1967)

This phase focused on laying the groundwork for global financial services infrastructure. Key milestones include the establishment of the first transatlantic cable in 1866 and the introduction of Fedwire in the USA in 1918, which facilitated the initial electronic fund transfer system using telegraph and Morse code. Despite its simplicity by today’s standards, this period was revolutionary in enabling financial transactions over long distances during a time of developing infrastructure and transportation.

Fintech 2.0 (1967 – 2008)

This era commenced with the installation of the first ATM by Barclays in 1967 and witnessed the transition from analog to digital finance. Notable developments include the founding of NASDAQ, the world’s first digital stock exchange, and SWIFT (Society For Worldwide Interbank Financial Telecommunications), a communication protocol for financial institutions handling cross-border payments. The 1980s saw the emergence of bank mainframe computers and the growth of online banking, fundamentally altering how people conducted financial transactions and perceived financial institutions. The 1990s saw the inception of digital banking, with platforms like PayPal (launched in 1998) hinting at the future of online payment systems. Despite optimistic economic outlooks, the global financial crisis of 2008 marked the end of this era, catalyzing subsequent fintech innovations.


Fintech 3.0 (2008-Current)

The aftermath of the financial crisis, coupled with regulatory changes and diminished trust in traditional banking, paved the way for new market entrants. The birth of Bitcoin in 2009, along with other cryptocurrencies utilizing blockchain technology, symbolized a departure from conventional financial structures. The widespread adoption of smartphones made mobile devices the primary gateway to the internet and financial services. This era has been characterized by a surge in startup activity, driven by both investor and consumer demand for innovation. Even established banks have adopted startup-like strategies, reflecting a shift away from the traditional banking model of Fintech 2.0. Technologies like Open Banking have facilitated the creation of digital banking products, while Banking as a Service (BaaS) platforms such as Treezor and SolarisBank have simplified the process for banks and financial institutions to launch digital banks focused on enhancing customer experience, known as “neo-banks.”


Fintech 3.5

In the era of Fintech 1.0 dating back to 1886, a monumental event occurred when a cable was laid beneath the Atlantic Ocean, setting the stage for banking practices over the subsequent century. Geographically, previous fintech eras have predominantly centered around the developed world, particularly Europe and the USA, with minimal expansion beyond the scope of that transatlantic cable.


Fintech 3.5 emerges to account for shifts in consumer behavior and internet accessibility, particularly in the developing world. Notably, China and India stand out as the countries with the highest fintech usage, situated far removed from the origins of the transatlantic cable. Unlike their Western counterparts burdened by established physical banking infrastructures, these nations have swiftly embraced new solutions.


Fintech 3.5 signifies a departure from the dominance of Western-centric financial systems, recognizing the advancements in digital banking occurring on a global scale.

The Outlook Ahead

In the wake of a global pandemic, envisioning the future remains uncertain. Venture capital fintech investment witnessed a significant decline of $6.1 billion as of May 2020, marking the lowest funding level since the first quarter of 2019.


However, the foundational technologies driving the Fintech 3.5/3.5 era, notably blockchain and open banking, will continue to fuel future innovation.


Machine learning is poised to revolutionize interactions with banks and insurance companies, aiming to enhance customer relationships through personalized experiences tailored to individual behaviors. This approach, often referred to as “segment of one,” enables financial institutions to offer bespoke services and support, thus delivering a more relevant experience to customers.


For instance, German digital bank N26 is already crafting tailored offerings such as discounts with flexible workspace provider WeWork and online travel booking site GetYourGuide. Meanwhile, competitor Revolut is developing a machine learning product to assist customers in budgeting based on their past 3-6 months of spending.


This wave of innovation extends beyond the banking sector, as insurance companies leverage machine learning to expedite claims processing. In China, insurer Ping An is implementing a system that automates claim settlements through an algorithm assessing factors like the vehicle involved and the extent of damage, enabling swift resolution of claims.


While these innovations benefit consumers, businesses are also poised for transformation. Integrated payment providers are set to reshape how businesses, both online and brick-and-mortar, collect and manage funds. Platforms like Shopify for e-commerce, Housecall Pro for service professionals, and Mindbody for wellness studios offer comprehensive business management systems that now include payment processing capabilities.


By integrating payments into their existing suite of sector-specific tools, these platforms are positioned to dominate niche markets, offering industry-tailored solutions to address unique business challenges. As providers like Lightspeed POS introduce proprietary payment solutions, they can capture greater revenue from their customer base, fostering growth alongside their clients.


Looking ahead, the convergence of personalization and automation in systems aimed at enhancing customer experience and fostering the “segment of one” approach will likely define the future landscape of financial management.

What Next?

As observed, the journey leading to our current state has been notably slower compared to the rapid pace of change witnessed in the past two decades. While it took sixty years to introduce the first cash machine, today, we’re surrounded by apps and systems that seamlessly update in our pockets, poised to revolutionize how we manage our finances.


Beneath the veneer of technology, the primary impetus driving this innovation remains the enhancement (in a secure manner) of the customer experience. Throughout each fintech era, the focus has consistently been on leveraging technology to simplify banking for customers. As technology evolves, so do the methods through which individuals and businesses handle their finances.


Despite the occasional setbacks along the way (which have been plentiful since 1886), this underlying philosophy remains unchanged. Therefore, when contemplating the future and strategizing the direction of your own product, prioritizing the customer experience is likely to be a highly resilient strategy.



The evolution of fintech has revolutionized financial management for individuals and businesses. From the introduction of online banking to advancements like blockchain and machine learning, each era has driven significant changes in how we handle finances.


Fintech 3.5 reflects a global shift towards digital banking, especially in developing nations like China and India. Looking ahead, foundational technologies will continue to fuel innovation, with a focus on enhancing the customer experience.


As we navigate future challenges, prioritizing customer-centric strategies remains crucial for success in the dynamic fintech landscape.

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