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Financial Technology

Background

The financial technology industry's origins can be traced back to the 19th century, when the infrastructure needed to support electronic financial transactions was first created. Two specific developments made it possible to transfer funds electronically, according to the Emerging Payments Association. One was the first permanent transatlantic cable in 1866. The other was the Fedwire Funds Service in 1918, which revolutionized inter-bank settlements by allowing them to be conducted with greater efficiency and safety.

"In the early 1900s, settlement of interbank payment obligations often involved the physical delivery of cash or gold to counterparties, which was both risky and costly," the Federal Reserve System explains. "To mitigate these risks, in 1918, the Reserve Banks introduced a dedicated funds transfer network featuring a Morse code system that connected the 12 Reserve Banks, the Board, and the United States Department of the Treasury. The key feature of this arrangement was the ability to transfer balances held at the Reserve Banks using a secure communications network. This feature remains the foundation of Fedwire Funds Service operations."

Another pivotal industry development occurred on June 27, 1967, when the very first automated teller machine (ATM) appeared. Conceived by Scottish inventor Shepherd-Barron, the machine was installed in Enfield, north London, and was the first of six "cash dispensers" commissioned by Barclays, according to Reuters. Fifty years later, roughly 3 million ATMs operated worldwide, including 70,000 in the United Kingdom.

During the 1970s, technology continued to revolutionize the financial technology industry. The decade saw the birth of the NASDAQ, the first electronic stock market in the world, in 1971. Nine years later, Apple went public on the exchange, setting the stage for future developments that would help to revolutionize the industry, including the Apple App Store’s debut on March 6, 2008 (nine months after the original iPhone was introduced) and the mobile payment service, Apple Pay, on September 9, 2014.

Another key industry milestone occurred in 1973, when 239 banks from 15 countries tackled the problem of communicating about cross-border payments. At that time, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) was formed in Belgium. In 1977, it began offering messaging services, which replaced Telex. According to the organization, the "main components of the original services included a messaging platform, a computer system to validate and route messages, and a set of message standards. The standards were developed to allow for a common understanding of the data across linguistic and systems boundaries and to permit the seamless, automated transmission, receipt and processing of communications exchanged between users."

Except for ATMs, most early financial technology was not visible to the average consumer. For example, banks relied on mainframe computers, which operated on the "back end." This would change as early iterations of online banking became available to the public. According to a GOBankingRates article by Ruth Sarreal, these included a New York City at-home banking service introduced in 1981 by Chase Manhattan, Citibank, Manufacturers Hanover, and Chemical Bank. In the United Kingdom, the Bank of Scotland allowed customers to access the Internet via their televisions and telephones for money transfers and bill payment via the service, Homelink. In the United States, the Stanford Federal Credit Union was the first institution to offer Internet banking to all customers in October 1994. Two years later, NetBank became the very first Internet-only bank. Consumers gained a new way to make online payments consumers following the introduction of PayPal in 1998.

The availability of smartphones signified another major milestone in the financial technology’s industry. Suddenly, consumers had access to a wide range of applications for their mobile devices. In addition to the Apple App Store, the Android Market was introduced in 2008 for users of the new Android operating system. On March 6, 2012, Google made all content for the Android OS available from a single platform called the Google Play Store. In 2015, Android Pay made its debut, one year after rival Apple Pay.

Although early attempts to establish online currencies, including B-Money and Bit Gold, date back to the late 1990s, bitcoin is recognized as the first established cryptocurrency. In Forbes, Bernard Marr explained that the paper, "Bitcoin – A Peer to Peer Electronic Cash System," was posted to a mailing list discussion in 2008 by someone under the name, Satoshi Nakamoto, whose true identity has never been discovered. The Bitcoin software became publicly available in 2009, opening the floodgates for the development of many other cryptocurrencies.

By the early 2020s, the financial technology industry had evolved and become an integral part of everyday life for many consumers and businesses. Writing for Tipalti Inc. in 2021, Brianna Blaney explained that 96 percent of consumers were aware of at least one of the industry's companies or services worldwide. Compared to 33 percent in 2017, 64 percent of the world's consumers had used at least one fintech platform.