Is the FinTech Utopia Just Around The Corner?


Utopia: noun  uto·pia  \yu̇-ˈtō-pē-ə\; an imaginary and indefinitely remote place; an impractical scheme for social improvement

There is a common belief today that a coming technology utopia will solve all our problems with the financial system. This type of belief is not new – take a look at these quotes from the 1970s, 1980s and 1990s:

 “The hottest item in the stock market these days is not a security but an automated quotations system called NASDAQ that is speedily revolutionizing the over-the-counter market…The new electronic system gives bid and asked prices on about 2,500 counter stocks” (“The Counter Revolution: NASDAQ Bringing Competition To Wall St”, New York Times, April 4, 1971)

‘ “This is definitely the wave of the future”…Many of the [computer] services enable clients to peruse their [stock] accounts, study a host of investment analyses, obtain stock quotes and read financial news reports. Some customers can have access to their accounts 24 hours a day, 7 days a week.” (“Home Computers Put Investors Into Picture”, Toleda Blade, April 1, 1984)

 “As Wall Street’s investment houses shove thousands of employees out the back door, billions of dollars of high-technology equipment and software are being wheeled in the front. This is one of the Street’s most significant structural changes in decades…The [Morgan Stanley] unit was extremely sophisticated, Wall Street executives say. For example, it contained an analytical program, nicknamed Pac-Man, which helped analysts evaluate factors affecting stock prices. The system generated multi-dimensional graphs on a computer screen, and analysts put on 3-D glasses to read them.” (“All About/Wall Street Technology; Wall Street’s Cutbacks Sidestep Fat Budgets for High-Tech Trading”, New York Times, April 7, 1991)

Going even further back,  in 1892, the New York Stock Exchange installed its first electric boards that would flash and notify members of orders. Earlier still, in the early 11th century, there is evidence of the first cashless shopping district. It was in Basrah, modern-day Iraq. The shopping district was using bank-based cheques instead of cash[1].So when it comes to money, innovation is not far behind.  The financial sector, then,  in its broadest sense has always been at the cutting edge of technology.

Despite these technology revolutions, the financial system has remained prone to boom and bust. Sure, fintech will dislodge lumbering incumbent financial players, cut costs, and create whole new ways of doing things, but it won’t change human nature. A new app will not change our tendency to believe the good times will last forever and similarly the bad times. The paradox is that this irrationality of not being realistic of the likelihood of success or failure of things is the very thing that fuels innovation. Go figure!

[1] I Labib, S., Y., 1960,”Capitalism in Medieval Islam”, Exchanges: v. 2: A Global History Reader, Pearson

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