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      Introduction

      Financial Technology or FinTech is one of the most promising industries in 2016. The FinTech revolution, driven by a wave of start-ups with innovative new business and revenue models, new products and services, is changing finance for the better globally. These FinTech firms offer users a range of financial services that were once almost exclusively the business of banks. Should banks be afraid of the FinTech boom?

      At the end of 2015 Forbes concluded:

      This introduction provides a broad overview of the Financial Technology sector by setting the scene and explaining what is actually meant by “FinTech”. These chapters serve as stepping stones paving the way towards the more specific topics that are covered in greater detail in The FinTech Book.

      Banking and the E-Book Moment

      Cast your mind back to 2007, the year that saw the launch of the first-generation Kindle. At that time e-readers were widely available in electronics stores but there was no real indication that a revolution was about to sweep the publishing industry. The merits of the e-book were widely discussed by book buyers, but the printed word still reigned supreme – digital consumption was very much a minority sport.

      Fast-forward to the present day and both readers and publishers are in a very different place, and sales of e-books have rocketed. According to figures published by Statista,2 the US digital book market was worth just US$0.27 billion in 2008, but by 2015 that figure had risen to $5.69 billion. Physical book sales haven’t collapsed; what we have seen is digital publishing taking a rapid route from the periphery of public consciousness to the mainstream in less than 10 years. The e-book is now part of our lives. It’s a journey that reflects the willingness – and eagerness – of consumers to embrace convenience even where this is made possible by complex new technologies, delivery channels, and business models. And this journey is currently being echoed in the financial services industry.

      The Shifting Financial Landscape

      The world’s major retail banks still dominate the financial services landscape, providing the deposit, payment, and credit facilities that we all use and take for granted, but they are no longer the only players in town. Today’s online shopper might pay with a debit card but equally they might choose PayPal. The business that would once have relied on its bank for credit can now borrow from peer-to-peer (P2P) platforms or specialist lenders. And digital banks are vying with their bricks-and-mortar counterparts for customer deposits. It’s all about access and convenience.

      As alternative finance gains traction with customers, FinTech is approaching its e-book moment – the point at which a critical mass of consumers and business customers see the technology-driven solutions offered by new players in the marketplace as a viable – and often preferable – alternative to the services offered by incumbent banks.

      The implications for the traditional banking industry are immense. Developments in FinTech have the potential to erode the brand equity of the incumbent players and eat into market share. But banks also have an opportunity to embrace FinTech innovation and offer new solutions to their customers.

      An Unfinished Revolution

      Anyone seeking evidence of the potential market power and reach of technology-driven finance providers need look no further than the now venerable PayPal. Launched in 1998, the company was taken over by eBay in 2002 and became the default payment system across all of the online auction operator’s international sites. Since then PayPal has expanded its offering and it now sits alongside debit and credit cards as a payment option on an ever-increasing number of e-commerce sites. Whether that online performance will translate to dominance in face-to-face transactions remains to be seen. Today, the company boasts more than 100 million active accounts and processes an average of US$315 million in payments every day.3

      The payments market is evolving fast and this evolution will chase convenience, speed, and data collation. Witness the initial success of Apple’s contactless payment system Apple Pay, which allows consumers to purchase and pay for goods and services simply by placing an iPhone 6 in proximity to a point-of-sale terminal. Apple Pay is just launching in the UK, but it currently accounts for US$2 out of every $3 processed by contactless systems in the US.4

      One of the single greatest obstacles is ubiquity – the consumer can be faced with a myriad ways to pay. We are now witnessing a global wave to introduce 24/7 real-time bank account-to-account transfers in all the major jurisdictions. This shift, coupled with regulatory reform, will create opportunities for new players to enter the market and provide data aggregation services and payment initiation options to give life to the Internet of Things revolution.

      The use of pre-paid cards is also on the rise. A 2012 report from MasterCard5 predicts that the market for so-called e-money (cards pre-loaded with cash) will be worth around £822 billion by 2017. If these numbers are impressive, they represent only the tip of the FinTech iceberg.

      Borrowing and depositing is also undergoing something of a revolution, thanks in no small part to the emergence of P2P lending platforms. In the UK P2P lending emerged shortly before the financial crisis with the launch of Zopa in 2005. Other platforms such as Funding Circle and RateSetter followed. To date, the industry has lent a cumulative figure of £2.6 billion and the market

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