History And Evolution Of Fintech In Banking V3.docx

History and Evolution of FinTech in Banking in General 1800s The Financial Technology revolution traces its history back in 1860s in Italy. A priest and inventor named Giovanni Caselli1 developed the PANTELEGRAPH. A device used predominantly to verify signatures in banking transactions by sending and receiving transmissions on telegraph cables. This invention is widely regarded to be the first step in the journey towards modern financial Services. Although, know to be extremely slow with a sheet of paper with about 25 words will take 108 seconds to transmit.1 In late 1880s, Merchants began exchanging goods and services for credit using items known as charge plates and charge coins. These charge plates and coins were used until the 1960s. Charge plates were aluminum or white metal plates embossed with a customer’s name and address on the front, and a paperboard insert on the back with the issuer’s name and cardholder’s signature. Charge coins bore the customer’s identification number and an image associated with the vendor and were roughly the same size and shape as modern coins.2 1900s In early 1918 to late 1970 the United States Federal Reserve Banks devised a system to move funds electronically, known then as the Federal Reserve Wire Network. It connects all 12 Reserve Banks across the United States, the Morse code-based system was used as a real-time gross settlement funds transfer system until the 1970s, there after it shifted telegraphy towards telex and finally to computer operations and proprietary communications networks.4

Thomas, M., and Morse, J. (Jul, 2017). ‘Fintech – Origins and prognosis’. Retrieved from ResearchGate. 1

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(2016). ‘6 Technologies that are hundreds of years older than you think’. Retrieved from Steemit. 2

Gerson, E. (Nov, 2007). ‘Pre-plastic credit: Charge plates, coins, celluloids’. Retrieved from Creditcards.com. 3

(Jul, 2014). ‘Assessment of compliance with the core principles for systemically important payment systems’. Retrieved from The Fedwire Funds Service. 4

In 1919 the economist and author Joh2n Maynard Keynes wrote about the link between Finance and Technogy in his book, The Economic Consequences of the Peace. His work is arguably the first allusion to financial technology and the future ofi financial services.5

1950s In 1950 Diner’s Club introduced the first iteration of the credit card. Although credit was not a new concept, it was quite a laborious and segmented process. The introduction of the first universal credit card meant credit could be traded on at a variety of establishments.6 In 1958 American Express introduced their own version of credit card.

1960s Quotron (now Citibank) a Los Angeles-based company that in 1960 became the first financial data technology company to deliver stock market quotes to an electronic screen The Quotron offered brokers and money managers up-to-the-minute prices and other information about securities.7 Quotron was the first product to offer stockbrokers and money managers stock market quotes on an electronic screen instead of a printed ticker tape8. By 1986, Quotron was renting 100,00 terminals to the brokerage industry, equating to roughly 60% of the 1986 market, with attracted Citicorp to acquire them.9 The telex network replaced the telegraph as the standard of long-distance instantaneous communication of information in 1966. Any user on any telex exchange could deliver messages 5

Keynes, J. (1919). ‘The economic consequences of the peace’. Retrieved from McMaster University.

6

Encyclopedia Britannica.

7Quotron

– Wikipedia https://en.wikipedia.org/wiki/Quotron 8

(Mar, 1986). ‘Quotron expects board to reject Citicorp bid’. Retrieved from The New York Times.

Hansen, S. (Jan, 1994). ‘Citicorp passes off Quotron, predicts big quarterly profit’. Retrieved from The New York Times.

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to any other user all around the world. This flexibility opened the doors for global communication of financial transactions and information.3 The Telex is superseded by fax and email today. 10

In 1967 the first automated teller machine (ATM) was installed by Barclays Bank at its Enfield Town branch in North London. To facilitate the convenience of receiving money form a machine, users were required to insert paper cheques issued by a teller or cashier. These cheques were marked with carbon-14 as a security measure and improve machine readability. This security measure was later paired with a 6-digit pin for extra protection. Setting a trend for the future of financial services. Current ATM cards have EMV chip as security feature based on BSP Circular No. 936 dated Dec. 28, 201611.

1970s In 1971 the National Association of Securities Dealers Automated Quotations (NASDAQ) was established. It is the world’s first electronic stock market, it helped reduce the spread (the difference between the bidding price and asking price of a stock and heralded the end of fixed securities commissions.12

1980s

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(1997). ‘The Telegraph’. Retrieved from Encyclopedia.com.

11 Ben Vera (Jun 2017) ‘Bsp Orders Banks To Issue Emv Cards To All Clients By June 2018’ Retrieved from https://business.inquirer.net/231392/bsp-orders-banks-issue-emvcards-clients-june-30?utm_expid=.XqNwTug2W6nwDVUSgFJXed. 12 Terrell, E. (Oct, 2012). ‘History of the American and NASDAQ Stock Exchanges’. Retrieved from Business Reference Services.

In 1982 – 1983 two large steps taken in the FinTech revolution: E-Trade and online banking. ETrade, was originally founded under the name of TradePlus, became the first online stock brokerage firm in 198213. In 1983, customers of Nottingham Building Society were the first to get access to online banking, provided by the Bank of Scotland and know as Homelink. Online banking was introduced in the United States in 1983 but Chemical bank, but due to a lack of customer draw, canned the idea in 1989.

In the Philippine setting, according to the AVP for Electronic Channels Group Bank of the Philippines Islands (BPI), Carlo Gatuslao said that first experiments with the internet banking happened in about late 1980's.134 Even internet banking was not popular in the Philippines. It was on the mid 1990's that some banks abroad successfully implement transactional internet banking.

E-Trade, a public company servicing self-directed investors still serves customers today and fielded 164, 134 average trades in 2016, bringing in almost US$2 Billion. In the wake of the success if internet banking in the UK, the majority of banks in the US set up their first transactional websites for internet banking in the late 90s.14 In the Philippines, it was in the 1980s, with the introduction of automated teller machines (ATMs), when e-banking made an auspicious debut and in a way revolutionized how we viewed the conventional, brick-and-mortar bank structure. Today, ATMs are widespread, totaling 4,395 units as of June 30, 2003. Of the total, 28 percent are located off-site from bank premises. It’s safe to say that ATMs now form a major part of our normal banking routine especially in more urbanized areas and are integral to banks’ customer delivery channels.15

In 2000s

13 (2004). ‘E-Trade financial corporation history’. Retrieved from Funding Universe. 14 Zimmerman, E. (Apr, 2016). ‘The evolution of Fintech’. Retrieved fromThe New York Times. 15 15 History Of Internet Banking in the Philippines Admin https://www.affordablecebu.com/load/banking/history_of_internet_banking_in_the_philippines/13-1-022863

Some FinTech innovations in the new Millenium includes the rising popularity of Bitcoin. Bitcoin is dominant cryptocurrency released in 2009. 16 In 2011, Google developed its Google Pay Send that allows smartphone users with NFC (NearField Communication) chips in their devices to make tap payments.17 In 2017, Alibaba introduced “smile to pay”.18

Current Trends In general, the 21st century brought on a whole new version of fintech. Instead of credit cards and ATMs, it’s all about virtual cards and virtual money. These online tools can do a lot more than hold and transfer money; they provide some of the following:5      

Streamlined HR/payroll processes Subscription management using virtual cards Automated expense reports and reimbursements Heightened visibility into transactions and company spending Streamlined accounts payable processes Automate travel booking and expenses19

Banks as tech providers Banks have also become technology providers, competing with the likes of PayPal or Square and sometimes collaborating on rolling out shared platforms to enable services. For example, in 2017 Early Warning Services LLC. – a technology provider owned by Bank of America, BB&T, Capital One, JPMorgan Chase and Wells Fargo – unveiled its new Zelle person-to-person payments service. The service platform is expected to be supported by more than 30 banks this year and will let 86 million U.S. mobile banking customers send and receive payments as an alternative to cash and checks.

16 Davis, J. (Oct, 2011). ‘The crypto-currency’. Retrieved from The New Yorker. 17 (2018). ‘G Pay’. Retrieved from Google Pay 18 Russell, J. (2017). ‘Alibaba debuts ‘smile to pay’ facial recognition payments at KFC in China’. Retrieved from Tech Crunch. 19 The Evolution Of Fintech and How It Affects the Finance Industry | Divvy Inc. https://getdivvy.com/resources/fintech

So now the FinTech [firms], who were disrupting the banking industry are now being disrupted by the banking industry, which is an interesting spin of events. It's a good example of the disruptors being disrupted. -Eric Piscini, Deloitte Consulting. 20

20 What Is Fintech (and How Has It Evolved)? Lucas Mearian - https://www.computerworld.com/article/3225515/what-is-fintech-and-how-has-itevolved.html

Sources:

Thomas, M., and Morse, J. (Jul, 2017). ‘Fintech – Origins and prognosis’. Retrieved from ResearchGate. 1

2

https://www.getsmarter.com/blog/market-trends/the-history-of-fintech/

3

https://en.wikipedia.org/wiki/Quotron

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https://business.inquirer.net/231392/bsp-orders-banks-issue-emv-cards-clients-june30?utm_expid=.XqNwTug2W6nwDVUSgFJXed.1 5

http://www.bsp.gov.ph/regulations/regulations.asp?id=3723

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https://www.theguardian.com/money/2005/jan/20/accounts.saving

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https://www.affordablecebu.com/load/banking/history_of_internet_banking_in_the_philippines/ 13-1-0-22863 8

http://www.bsp.gov.ph/publications/speeches.asp?id=66&yr=2004

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https://www.computerworld.com/article/3225515/what-is-fintech-and-how-has-it-evolved.html

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https://getdivvy.com/resources/fintech