The future of Fintech and how it is shaping global business

A range of transformative technologies, from blockchain to quantum computing, are shaping the future of banking and payments, creating new risks and opportunities for firms operating across borders.

The rapid pace of change and the dire need for both companies and regulators to keep up was explored in a webinar on the future of financial technology convened in April by Georgia State University Center for International Business Education and Research.

Evaristo Doria, a professor at GSU Robinson College of Businesssaid during an introduction that companies aiming to compete globally must “master the present, and this is fundamental to survival, but they must also anticipate the future, and this is fundamental to success.”

That future seems to be coming faster as the Internet itself undergoes a change from just an interconnected clearinghouse of information to a web of ecosystems larger than any single government or private actor can muster.

Building trust with blockchain

One example is blockchain, the distributed ledger technology that burst onto the scene as a means of verifying transactions in bitcoin, the first major cryptocurrency.

This underlying technology, which posts every transaction to a transparent log distributed across multiple servers globally, has given rise to a wave of activity in “decentralized finance” – the exchange of value outside the purview of a central bank or national government. Non-fungible tokens, certificates that validate digital assets like GIFs or other artwork, provide one example of how this is developing.

But this is just a taste of how blockchains can change business, said Jai Singh Arun, senior program director at IBM Research.

“Think of blockchain 1.0 as digital currency, blockchain 2.0 as digital economy, and then 3.0, which we will see in the next five years or so, is digital society,” Arun said during the discussion.

The technology, he claims, can be used to recreate networks of trust on a global scale that allow known parties to trade with each other, paving the way for digital trade in areas where it has not traditionally been possible.

Other use cases include cross-border payments, syndicated bank loans and even traditional logistics, where proponents claim the technology can reduce delays and increase supply chain visibility. Identity authentication is another challenge that blockchain is being used to solve as it becomes more mainstream.

“We know, as of today, over 40 different countries’ central banks are experimenting with blockchain technology,” he said. He noted that the President of the United States Joe BidenThe March 2022 executive order urging regulators to take a closer look at digital assets was an acknowledgment that governments see their progress as inexorable.

Blockchain’s promise, especially when paired with technologies like the Internet of Things, is why about $25 billion has been invested in blockchain-oriented startups in recent years, Mr. Arun said.

Quantum computing makes new modeling – and de-risking – possible

Equally powerful is the coming revolution in quantum computing, which could transform countless industries’ ability to perform calculations exponentially faster than classical computers, said Enrique Lizaso Olmos, Spain-based founder and CEO of Multiverse computing and a board member in European Quantum Industry Consortium.

On top of ambitious corporate research, governments are investing billions in the development of quantum computing, which processes algorithms using subatomic particles that are not confined to binary states like the electronic bits of standard computers.

This has huge implications for cryptography and a number of other fields such as machine learning and artificial intelligence, which rely on analyzing huge data sets, or in cases where simulations must take into account many variables.

“The risk is enormous just to lag behind,” Olmos said.

Investment banking is one of the areas ripe for disruption, as quantum computers can produce better predictive models that can help banks with portfolio management and fraud detection, while protecting against risk in the financial system.

In the 2008 global financial crisis, trading in bundled financial instruments was done electronically at such a speed that no one could keep up with the spiral that followed; quantum computing could have helped see that coming, Mr. Olmos said.

Fintech in everything: embedded economy

Blockchains and faster computing show the highly contingent relationship between regulators and incumbents who often preserve the status quo and the disruptors who try to change it, says Nir Netzerhead of the Israeli fintech association Fintech-Aviv.

On the one hand, the rise of decentralized instruments such as cryptocurrency makes the traditional banking sector less powerful. It became clear after Russia’s invasion of Ukraine and its banks’ subsequent removal from FAST system for global interbank payments, Netzer said.

“(SWIFT) is powerful, but it’s not a must,” he said, noting that many Russians were still able to move their assets out of the country using cryptocurrency and other alternative payment networks, which are on the rise.

At the same time, regulators’ embrace of “open banking” – where traditional banks are required to give consumers stronger control over their own data and open their platforms to integrations via APIs – has encouraged the rise of many business-to-business fintechs. who sell to banks instead of trying to liquidate them.

Israeli disruptors like social investment app eToro and cross-border payments provider Payoneerboth of which went public via SPACs that raised billions in US markets, may suggest a different story, but most fintech successes are “on the enablement side and not on the disruption side, and we see regulation actually enabling that and encouraging that. “

Fintech includes payments, he said, but it is better seen at the infrastructure that underpins new business models and marketplaces – think of the background of financial transactions that happen via Uber and AirBnBsaid Mr. Netzer.

“You can try to imagine where the world is going with the term ’embedded finance,'” Mr. Netzer said. “There is a financial aspect to everything we do.”

Watch the full webinar above and view previous events in the GSU-CIBER International Business Webinar Series here.

Next in the series: Revisiting Export Strategy: Research and Practice on 20 October at 11.00