What is ‘fintech’?
This is a genuine question of whether we consider crypto as fintech or not. To start, let’s look closer at what we mean by “fintech.”
The term is the portmanteau of “financial” and “technology,” and most definitions stress the latter’s influence on finance. “Finance” is usually defined as “the management of money.”
Does crypto help with the management of money? Although they may have money-like qualities, cryptocurrencies are not yet a medium of exchange, not to many people. Yet they can help move money around, allow it to express opinions in new forms and generate returns in creative ways.
Of all the definitions of fintech from official organizations that I’ve read, the Financial Stability Board’s choice of words is perhaps the most inclusive: “Technologically enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services.”
The “technologically enabled financial innovation” part is perhaps problematic, as crypto is much more than “financial innovation,” but it’s not wrong.
What is ‘cryptocurrency’?
We should probably define “crypto” as well. The term originates from cryptography, which has to do with the security of information. Crypto is widely used in its abbreviated form to refer to all things blockchain, including cryptocurrencies, tokens, smart contracts, etc.
Recently, Standard Chartered, about as “traditional finance” as you can get, announced the pending launch of a crypto custody service. More details are emerging on the plans of PayPal, long a darling of the fintech sector, to offer crypto services. MUFG, Japan’s largest banking firm, is developing its own crypto token for use in a smartphone payment app. In his timely report for crypto API provider, Zabo called “Fintech Adoption of Cryptocurrency,” Alex Treece highlights how the rolling out of crypto-asset services boosted valuations of fintech firms Robinhood, Revolut, and Square. Visa issued a statement this week in which it bragged that it was “reshaping how money moves across the globe,” and in the very next sentence talked about the “exciting avenue” of digital currencies.
So, fintech seems to be increasingly embracing crypto. But is crypto fintech? It does seem to be becoming part of the fintech set. It is a technology impacting how people handle finances. So, in some ways it is – but it’s also more than that.
Time for a refresh?
We should note that the term “fintech” is trying to put an edgy spin on an age-old concept. Financial innovation is not new, as material changes to how money is managed were triggered by the telegraph, telephone, centralized ticker service, complex derivatives, etc.
Even in its modern application, it is becoming outdated, since there are few traditional finance firms that don’t already heavily rely on new technologies to reach and grow client bases.
Given the impact of crypto-based innovation and its application on our understanding, surely we can come up with something better. Using a tired catch-all for something so significant is like trying to put a formidable force into a tidy bucket.
So far, the technologies making the biggest waves in fintech are the internet and AI – they are game-changing, for sure, but their innovation stems from the creation and treatment of radically new types of data.
Crypto is also a data innovation, but it goes much further – it’s an innovation of authority. Since the power of finance stems from the authority conferred to it and by it, the potential impact of crypto goes beyond what previous technologies have managed to achieve.
The technologies we apply to finance matter, as technology shapes what we do and how we do it. The internet, for instance, changed how we carry out age-old activities such as writing letters or grocery shopping. It also gave rise to entirely new activities such as video conferencing and gaming.
Do you consider Crypto as Fintech?
Fintech has been a transformative force; changing financial habits and attracting new audiences is no small feat. Many people now believe crypto is a tool that could join mainstream financial innovation. Yet it is not going to settle for just that.
We must not underestimate the impact of new technologies on how we handle money. But no technology until now has attempted to change our understanding of money.