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Financial Technologies and Applications
Article in IT Professional · March 2018
DOI: 10.1109/MITP.2018.021921648
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GUEST EDITOR INTRODUCTION: FINANCIAL TECHNOLOGIES AND APPLICATIONS
Financial Technologies
and Applications
Fintech, an abbreviation for financial technology, is one of
the driving disruptive innovations in the area of finance. In
Maria R. Lee general, it seeks to reshape how the financial services
Shih Chien University industry structures, provisions, and captures customers’
demands.1 It has made transformative inroads in banking,
David C. Yen
SUNY at Oneonta insurance, investment management, securities, and other
financial sectors.2 Fifty percent of financial consumers
George F. Hurlburt worldwide use at least one fintech application.3
STEMCorp Furthermore, China and India, with usage rates of 84
percent and 77 percent respectively, lead the world in
terms of rapid fintech adaptation by country.3 As
developers and financial institutions relentlessly seek to harness new technologies, they tend to
create new and disruptive business models that offer added value. Figure 1 highlights some of
the key technologies and new business models, and the critical value they contribute.
Figure 1. Fintech trends and opportunities.
Early instances of fintech as a means of improving the financial sector can be traced to Europe in
the 1600s, where financial consortia helped spark the Industrial Revolution. As a means of
building global financial interconnectivity, telegraphs and improved telecommunications
capabilities were adopted in the late 1800s. By 1967, simple calculators and ATMs ushered in a
new digital era for fintech. Computer systems became a pervasive driver for expanding and
IT Professional Published by the IEEE Computer Society
March/April 2018 27 1520-9202/18/$33.00 ©2018 IEEE
IT PROFESSIONAL
expediting transactions in the financial sector by 1987. The advent of the Internet and mobile
devices catapulted fintech into a global phenomenon by 2000.4 The fiscal crisis of 2008 further
fueled the fintech revolution.
As technology continues to hasten processes and broaden the operating domain of financial
institutions, it challenges the best practices that have evolved over the years in the financial
world. To better appreciate these challenges, we provide a glossary of some of the terms
necessary to comprehend the broad range of fintech initiatives that are increasingly cropping up
worldwide, often fueled by well-capitalized and aggressive startups.5
Bitcoin: the most popular of more than 600 available variations of cryptocurrency. Its checkered
history and widely fluctuating value continue to generate uncertainty.
Blockchain: a distributed ledger technology (DLT) that underlies most variations of
cryptocurrency. Blockchain is beginning to gain legitimacy in industries where transactions
require validation, including insurance, securities, and contracts.
Cryptocurrency: a decentralized digital currency using encryption and blockchain technologies
to protect and validate transactions apart from a central authority.
Disruptive innovation: a form of innovation that challenges regulatory activities or other
operational aspects of an industry, forcing constructive change.
Ethereum: a form of blockchain whose design supports decentralized applications.
Financial inclusion: the application of fintech solutions that reach the unbanked or underbanked
segments of a developing market.
Initial coin offering: a means of selling startup cryptocurrencies to investors, typically using
crowdfunding techniques.
InsurTech: insurance technology; seeks to simplify the insurance industry while improving its
efficiency by focusing on disruptive innovation.
Open banking: a movement to harness APIs to connect traditional financial institutions, third-
party providers (TPPs), and end users in a network, often via mobile apps.
RegTech: regulatory technology; involves harnessing advanced technologies such as artificial
intelligence (AI) or machine learning to streamline financial compliance rules. Key aspects
include anti-money laundering (AML) and know your customer (KYC) identification and
verification.
Robo-advisors: algorithm-driven automated investment advisors intended to reduce the role of
human investment advisors.
Smart contracts: automated contract execution tools often employing ethereum for scripting
and blockchain for execution.
Unbanked/underbanked: a segment of society that lacks adequate access to banking services
which might benefit from fintech apps.
MODERN CHALLENGES AND OPPORTUNITIES
According to a World Economic Forum (WEF) report, fintech engages six core functions that
typically comprise traditional finance services: payments, insurance, deposit and lending,
capitalization, investment management, and market provisioning.1 Each one of these has distinct
fintech appeal and yet presents significant challenges to the continued emergence of fintech.
In the realm of payments, fintech is challenged to provide more competitive offerings to
consumers by making payment processes more straightforward. Mobile payments, streamlined
payments, integrated billing, and next-generation security represent the key disruptive trends in
the payment area.
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GUEST EDITOR INTRODUCTION
The emergence of distinct aggregators that can differentiate traditional insurance sales channels
might serve to better cement the relationship between the insurance companies and their
customers. Distribution channels, the notion of a sharing economy, self-driving cars, and third-
party capital are the key disruptive innovations that reinforce insurance disaggregation.
Challenges for better facilitating InsurTech will ultimately engage smarter and cheaper sensors,
wearables, the IoT, and other standardized platforms.
The financial crisis of 2008 turned out to be a crucial turning point for fintech. Post-crisis,
traditional financial intermediaries rigorously scrutinized lending practices to better control the
credit risk. This practice resulted in those with lower-credit ratings becoming unable to meet
lender-funding requirements to obtain traditional loans. The emergence of alternative lending
mechanisms, such as peer-to-peer (P2P) lending, virtual banking 2.0, mobile banking, smart
contracts, and open banking APIs all serve to offer additional alternatives to customers. At the
same time, these disruptive technologies challenge traditional institutions by directly influencing
customers’ expectations.
Financial institutions are now also forced to reevaluate traditional methods of fundraising in light
of fintech. Start-ups and mid-tier companies now enjoy an advantage in the operational planning
and credit-evaluation processes. The emergence of alternative online financing platforms, such
as equity crowd funding, expand the capital-raising pipeline for these
new business ventures. As a result, popularity of these fintech tools
has increased among various entrepreneurs.
After the 2008 financial crisis, many financial clients could no longer
trust human wealth-management and financial advisors. Robo-advisor
As fintech continues
services, social trading platforms, and innovative retail algorithmic
to gain momentum,
trading provide sophisticated and customer-friendly wealth-
management tools. These tools, often in the form of mobile apps, are it continually
becoming more readily accessible, less expensive, and more reliable
than their human counterparts. These technologies are becoming a challenges existing
force in serving investors in an increasingly dynamic and fast-paced
marketplace. business models.
Smarter mechanized systems to support market provisioning promise
to enhance transaction accuracy and precision. To this end, machine-
accessible data, AI, machine learning, and big data are becoming the
main drivers for algorithmic trading. In theory, these tools promise to
provide smarter and faster responses.
While all six areas deal with innovation and new technologies, it is perhaps more important to
note that as fintech continues to gain momentum, it continually challenges existing business
models. Over time, fintech might significantly change long-held business practices. With this
comes the promise of more sophisticated, smarter, and faster tools. But in an era of increasingly
unconstrained cyberattacks, these tools can also lead to fraud, permit predatory practices, and
present significant affronts to security and privacy. Carefully validated RegTech will play an
increasingly important role in a world where transaction rates long ago outstripped human ability
to perceive rapidly emerging trends.
RELEVANT FINTECH TECHNOLOGIES
Fintech ultimately aims to streamline the efficiency of the financial industry through continual
adoption of modern IT. AI, machine learning, big data, blockchain, cloud computing,
cybersecurity, biometric identification and recognition, the IoT, mobile computing, and social
networking all play varying roles in the recent emergence of fintech. Moreover, AI, big data, and
blockchain are considered three core technologies to enable fintech to penetrate the Internet and
mobile Internet.6 However, these relatively new elements do impose some significant
developmental risks.
One of the major fintech IT shifts is from Internet finance to data finance. Data has always been
a core component of finance. In the era of big data, however, finance data is bound to influence
March/April 2018 29 www.computer.org/itpro
IT PROFESSIONAL
tightening supervision in such areas as risk pricing and control. Along with big data, AI
underlies the future of financial data computation. Financial AI applications focus on deep
learning, intelligent analysis, and intelligent decision making. AI is further augmented by big
data, cloud computing, intelligent hardware, and blockchain technologies.7
The technology behind blockchain—the rather volatile Bitcoin cryptocurrency—already
portends enormous impact for start-up companies, initiatives, corporate alliances, and research
projects.8 In practice, blockchain technology does far more than just record monetary
transactions. Many new business models in fintech use blockchain-based technology.
Blockchains now underlie smart contracts, often working in conjunction with Ethereum (a form
of blockchain whose design supports decentralized applications). For example, blockchain
technology has been harnessed to track the state of healthcare provider licensees to simplify
health insurance and yield smarter, more verifiable healthcare services. Blockchain also offers a
potential use for insurers in providing new insurance products,
increasing the effectiveness to manage fraud detection and pricing,
and reducing administrative overhead.9
To gain a competitive advantage, the finance industry no longer
focuses on Internet traffic or the flow of data across the Internet. In
Technology
true evolutionary fashion, fintech is shifting from flow-oriented to enhances fintech
technology-centric. For this reason, IT is beginning to drive a new
phase of technological innovations, which in turn have led to novel operations by
business models within the finance industry. For instance, technology
enhances fintech operations by driving detailed refinements and driving detailed
increasing modularity. These trends lead to better customer
accessibility, comprehensive anti-fraud capabilities, and sound data- refinements and
risk-control mechanisms. Importantly, they also yield much-needed
reduction of cost, both in risk reduction and acquisition. increasing
As digitalization continues to expand, big data analytics, cloud modularity.
computing, and fintech collaboration will most likely become the
short-term considerations for fintech developers. For the longer term,
disruptive innovations in AI and machine learning automation,
cryptography, blockchain, and quantum computing will likely become
the ultimate fintech differentiators.10 With each, however, come
immense ethical challenges yet to be fully recognized, much less resolved.
INNOVATIVE BUSINESS MODELS
Fintech often yields disruptive innovation in existing business models. New payment types are
emerging with the development of P2P transfers and cryptographic protocols. These
developments allow new procedures to evolve. Unlike traditional centralized currency-clearing
mechanisms, decentralized currencies, cryptocurrency, and mobile money (such as M-Pesa in
Africa) generate entirely new competitive pressures. These new payment methods force existing
financial institutions—which rely on traditionally high exchange rates—to rethink their
strategies. Furthermore, payment apps such as Venmo and Dinngo offer free digital wallets to
allow users to make and share payments with peers and friends. These app payments occur in
fun, social, inexpensive, and straightforward ways. In so doing, they tend to support the
unbanked or underbanked.
The services provided by a single traditional financial entity can be decomposed into numerous
fintech business activities. Fintech tends to dismantle finance business processes to associate
their components, often via linked fintech app users. Thus, fintech IT is evolving from an
intermediation role to encompass core financial services without the middlemen. In so doing,
single business types tend to emerge from larger interconnected industrial chains. This fintech
focus, aimed at financial disintermediation, seeks to eliminate a need for financial intermediaries
such as banks, brokers, or finance houses. Rather, the pipeline between fund suppliers, such as
savers or investors, and the users of funds, such as borrowers or start-ups, is often far more direct
when fintech is applied. Disintermediation appears to gradually become a steering influence in
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GUEST EDITOR INTRODUCTION
the liberalization of the global financial industry through enabling radically modified business
strategies.
The emergence of network information aggregation platforms (aggregators) will streamline past
practice in the insurance business, where the company and customer relationship is based on
small, personalized commercial insurance sales pipelines. The emergence of online insurance
marketplaces and risk homogenization, however, will force irresistible changes in insurers’ sales
strategies.11 For example, low-cost, socially responsible robo-advisors now provide online,
automated portfolio-management services. This practice helps people understand their options
and make the best possible decisions without requiring a human advisor. No doubt, more
advanced robo-advisors will be required to assess and resolve more complex financial situations.
Global analytics technology, however, might further increase transparency in complex systems
and make financial market data more easily accessible. This, in turn, might lead to more relevant,
powerful, and feasible investment decisions.
VALUE CREATION
Investments in fintech companies worldwide have already exceeded $4,256,202 million in 2018.
Additionally, the global transaction value is expected to reach $7,971,957 million in 2022, with
an annual growth rate of 17 percent (www.statista.com/outlook/295/100/fintech/worldwide).
Gartner reports that the business value-add of blockchain will grow to more than $176 billion by
2025, and could exceed $3.1 trillion by 2030.12
The recent ascension of fintech has begun to create value, which fuels further development of the
financial industry itself. One of the key added fintech values resolves the bottlenecks
surrounding developers’ monetary flow. Fintech payment systems serve to enhance and advance
a global expansion and development strategy.
Fintech can enable easier and faster payment transactions, which bypass currency laws and
regulations that exist in different countries. P2P transfer technology might also allow
stakeholders to bypass the traditional intermediaries and transfer money directly to accounts.
This process is quick and relatively straightforward with only nominal
fees. Indeed, P2P promises to render a valuable service with fairness
and transparency.
Unlike traditional banks, which rely on the design of their larger-scale
products to attract customers, fintech has shifted to cater to the
Fintech has shifted
preferences of its consumers for streamlined and modularized to cater to the
products and services. As customers increase their dependence on and
trust in fintech, IT might be employed to provide increasingly preferences of its
convenient low-cost digitalized apps. As a result, fintech will have
improved the customer experience, which becomes one of its most consumers for
significant value creations.
streamlined and
IN THIS ISSUE modularized
This special issue of IT Professional presents emergent fintech trends products and
and examines promising future developments, critical challenges and
issues, innovative approaches and novel solutions, and new financial services.
applications. After a careful and thorough screening and review
process, the following three articles were selected for inclusion in this
special issue.
In “The Use of Big Data Analytics to Predict the Foreign Exchange
Rate based on Public Media: A Machine-Learning Experiment,” Rua-Huan Tsaih, Biing-Shen
Kuo, Tzu-Hsiang Lin, and Che-Chuan Hsu explore the hypothesis that the application of big data
analytics (BDA) technology with machine-learning modeling will yield relevant information in
new media (news websites, forums, and social media) and can predict the movement of
March/April 2018 31 www.computer.org/itpro
IT PROFESSIONAL
exchange rates. This article probes the proposed BDA mechanism, which is capable of
generating a prediction rate of more than 50 percent, suggesting its potential to yield additional
profits for traditional trading rules. It offers a fintech arrangement that can potentially compete in
the world of market efficiency.
In “How to Analyze Data from the Unlisted but Rich Firms: From the Perspective of Data and
Analysis,” Russell Newman, Victor Chang, Robert J. Walters, and Gary Wills describe the
techniques necessary to gather and analyze pre-processing data for unlisted but rich firms such
venture capitalist firms. They also demonstrates how to query and analyze using both
datastreams and SQL.
Finally, in “Evolving Payments Landscape: Technological Innovation in Payment Systems,”
Filip Caron identifies the distinct segments of the current payment landscape with inherently
different characteristics and risk profiles. The article associates different business requirements
with different payment market segments, distills trends and technological challenges from the
blueprints of future payment systems and regulatory frameworks, and identifies nimble
technology firms that are challenging the traditional banks.
FUTURE NEEDS
Because of fintech’s popularity and rapid growth (and unrelenting cybersecurity threats),
consumer protection and fraud protection mechanism are urgent needs. In this era of advanced
fintech development, governmental policies and regulations must also keep pace with economic
development in all markets, but particularly in the rapidly emerging markets of Asia and Africa.
These regions have an advantage as they tend to lack a backlog of old technologies to overcome.
At the same time, all societies responsible for introducing nimble but potentially dangerous
mobile apps to the world must take strong ethical considerations when creating the technologies
underlying fintech. We hope you enjoy this special issue on fintech and we welcome your
feedback.
REFERENCES
1. “The Future of Financial Services,” World Economic Forum, report, 2015;
www3.weforum.org/docs/WEF_The_future__of_financial_services.pdf
2. “The Future of Fintech: A Paradigm Shift in Small Business Finance,” World
Economic Forum, report, 2015;
www3.weforum.org/docs/IP/2015/FS/GAC15_The_Future_of_FinTech_Paradigm_Shi
ft_Small_Business_Finance_report_2015.pdf.
3. “World Fintech Report 2017,” Capgemini, report, 2017;
www.capgemini.com/service/introducing-the-world-fintech-report-2017.
4. D.W. Arner, J.N. Barberis, and R.P. Buckley, “The Evolution of Fintech: A New Post-
Crisis Paradigm?,” Univ. of Hong Kong Faculty of Law Research Paper No. 2015/047,
2015; https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2676553.
5. R. Browne, “Everything You've Always Wanted to Know About Fintech,” CNBC, 2
Oct. 2017; www.cnbc.com/2017/10/02/fintech-everything-youve-always-wanted-to-
know-about-financial-technology.html.
6. M. Swan, Blockchain: Blueprint for a New Economy, O’Reilly Media, 2015.
7. S. Chishti and J. Barberis, The FINTECH Book: The Financial Technology Handbook
for Investors, Entrepreneurs and Visionaries, Wiley, 2016.
8. M.E. Peck and S.K. Moore, “The Blossoming of the Blockchain,” IEEE Spectrum, vol.
54, no. 10, 2017, pp. 24–25.
9. J.T. Lorenz et al., “Blockchain in Insurance—Opportunity or Threat,” report,
McKinsey & Company, 2016; www.mckinsey.com/industries/financial-services/our-
insights/blockchain-in-insurance-opportunity-or-threat.
10. “Coming Technology: Fintech Developers Tell You What to Look For and Why the
Fintech Revolution Arose,” CNBC, 15 Jun. 2017; www.cnbc.com/2017/06/15/fintech-
developers-technology-apple-microsoft-xerox-kodak-revolution.html.
March/April 2018 32 www.computer.org/itpro
GUEST EDITOR INTRODUCTION
11. V. Dhar and R.M. Stein, “Fintech Platforms and Strategy,” Comm. ACM, vol. 60, no.
10, 2017, pp. 32–35.
12. “Blockchain Business Value, Worldwide, 2017–2030,” Gartner, report, 2017;
www.gartner.com/doc/3627117/forecast-blockchain-business-value-worldwide.
ABOUT THE AUTHORS
Maria R. Lee is a full professor of information technology and management at Shih Chien
University and a visiting professor at the Advanced Data Analytics Lab at Soochow
University. Her research interests include artificial intelligence, big data analytics, and e-
commerce. Lee received a PhD in computer science and engineering from the University of
New South Wales, Australia. Contact her at
[email protected].
David C. Yen is a professor of management information systems in the School of
Economic and Business at the State University of New York (SUNY) at Oneonta. His
research interests include data communications, electronic/mobile commerce, IT
auditing/governance, and the Internet of Things. Yen received a PhD in management
information systems from the University of Nebraska-Lincoln. Contact him at
[email protected].
George F. Hurlburt is the chief scientist at STEMCorp, a nonprofit corporation that works
in the public sector to further economic development via adoption of network science to
advance autonomous technologies as useful tools for human use. Contact him at
[email protected].
March/April 2018 33 www.computer.org/itpro
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