Fintech
Presented To:
Prof Tahseen Mohsan
Presented By:
1- Ahsan Qureshi (Reg # 2233019)
2- Wajahat Moheed (Reg # )
3- Bahadur Ali (Reg # )
4- M. Waqas Amin (Reg # )
Assignment No. 1
What is Fintech?
Fintech is also known as Financial technology and it is widely used to describe new
technology which seeks to improve and automate the use of financial services. In
simple words, we may say that its the application of innovative technologies to
products and services in the financial industry. Some of the good examples to share
are mobile banking, digital payments systems, blockchain, crypto currencies and
online lending platforms.
As a matter of fact, in today’s time, most of the business owners, consumers and
companies of all sizes take assistance and help from the utilization of Fintech. The
use of Fintech help them largely in managing their financial operations, processes
and day to day financial matters more efficiently and effectively.
Fintech is also very popular among the companies that rely more on financial
services, their functions covers a wide range of multiple activities which include the
store, invest, move, pay and protect money by their users.
As far as the growth of FinTech (Financial Technology) is concerned, it is very rapidly
growing industry that employs technology to improve financial activity. We have
already witnessed that through the increasing integration of technology, algorithms,
data, and mobile applications, has disrupted the traditional delivery of financial
services.
In a shorter version, we may also write and understand Fintech as:
Fintech: Finance + Technology
Most of the banks and financial institutes rely on Fintech and are benefited from it on
a larger scale. It is really helpful and effective for their day to day financial
management and works in multi dimensions that includes store, invest, move, pay
and protect money and effective utilization of it. If we look around, we can easily find
out that almost every single member of our society is using Fintech and in most of
the cases, he/she even does not know about it, but is a part of it such as small shop
keepers, traders, brokers, agents, as all of them are using banking apps, easy paisa,
jazz cash, even other important applications on mobile phones. So it is very much
part of our daily lives now.
Role of Fintech in Financial Market?
The prime objective of Fintech is to assist and help businesses, business owners,
consumers, banks and financial institutions. In addition, other objectives include,
democratize access to financial services and improve user experience. Moreover,
they reduce transaction costs and create new business models. If I am not
exaggerating, most of the financial transactions are digital today.
Many organizations have set goals for their businesses and in order to achieve these
goals, they use Fintech. For instance, They want to lower transaction costs, reduce
risk, and provide liquidity. The main financial system components include financial
institutions, financial services, financial markets, and financial instruments.
The fact of the matter is that Fintech applications covers a wide range of financial
services. These services include, crowdfunding, Insurtech, blockchain,
cryptocurrency, peer-to-peer lending platforms etc.
Historical Evolution of Fintech1 FINTECH 1.0 (1866-1967)
Fintech history dates to the 19th century and even before that. In 1860, a device
called PENTELEGRAPH was developed to verify signatures by banks. Historians
accept 1866 as the first valid Fintech footprints. This was the year the transatlantic
cables were setup leading to an era of creating network infrastructure & linkages
around the world. Setting up of Electronic fund transfer through Telegraph & Morse
code in 1918 by Fedwire led to first baby step in digitalization of money. The two
World Wars also saw a new set of coders & codebreakers mainly for the military
purposes (though this set up the idea of coding & future digital development). The
publication of book “The Economic consequences of Peace” in 1919 is treated as the
first thought on the fintech driven future.
Generally, Fintech historians miss one important and life altering event of Fintech 1.0
and that is Diner’s Card in 1950. This was first honest effort to make your payments
cashless and while the beginning was humble and limited to restaurants payments.
This was followed by introduction of Credit Card by Amex in 1958. With introduction
of Screen based stock data by Quotron in 1960, the Financial Market took the huge
stride.
FINTECH 2.0
Fintech 2.0 is considered to begin with the introduction of ATM machine by Barclay’s
in 1967. Just the year before in 1966, Telex had replaced Telegraph for transferring
information across the world; thus heralding an era of connected financial
transactions & communication. The major fintech growth came in 1971 with setup of
NASDAQ as the first electronic stock market. It changed the way bidding is done and
modernized the Initial Public Offering (IPO) process significantly. This is considered
as one of the most important Fintech development of all times. This was followed by
introduction of SWIFT in 1973, another revolutionary service standard. The 80’s saw
the development of electronic trades and online banking systems. Tradeplus (E-
trade) introduced the E-trade for the first time in 1982. 1983 was the year, when
Mobile phones were launched for the first time too. The development of complex
computing systems helped in launching of newer and more dynamic processes &
products. One major breakthrough was the evolution of E-commerce during the mid-
90’s which made the reliance of digital finance much more significant. 1998 saw the
launch of PAYPAL, the pioneer of cashless payments in years to come. The Year
2000 (Y2K) bubble burst and subsequent years saw a rapid development of
technology in financial sectors, mainly being deployed by the traditional banks as a
support function to their primary channels. The 2008 financial crisis led the
fundamental change in the outlook towards the Fintech sector and the need of
innovation led to the real boom that unveiled in the coming years.
FINTECH 3.0
The 2008 crisis led to the following requirements among others: • Post crisis reforms
required stricter regulatory compulsions for traditional banks and it opened up a new
market for smaller players. This was further helped by mistrust of public in large
financial institutions; and Overall focus of the industry was on cutting down
operational cost using technology. These requirements and developments led to a
new era of financial services and to FINTECH as we know it today. Two major events
were development of Bitcoin in 2009 as the first cryptocurrency and P2P payment
systems in 2011. The western world has been churning new developments and
hundreds of new unicorns since then. RegTech, Digital Lending, InsurTech, Wallets
and many more segments are seeing growth and innovations on a daily basis.
FINTECH 3.5
The year 2014 onwards saw a non-linear rise of two most populous countries in
Fintech; namely China and India. Devoid of large chains of complex physical banking
infrastructures, these two countries saw a very fast paced growth in the Fintech
sector. This along with Fintech developments in Africa is considered as the growth
engine for 2014-2018. This is led by SaaS2 developments like financial software by
Indian IT companies, M-Pesa in Africa, Payment banks in India, and Alipay in China
to name a few.
Historical Evolution of Payment System
Buying things and paying for them is something that is part of our everyday lives.
Here is a review of the historical evolution of the payment systems:
1. Barter:
Evidence of the existence of a barter system goes back to the Neolithic, starting with
the emergence of the agricultural/livestock society (probably before 7000 BC). Barter
is exchange of material goods or services for other goods or services.
2. Coins:
Their first appearance dates from approximately 680 to 560BC in what it is now
Turkey. The use of coins was introduced because barter sometimes posed difficulties
for transactions, and certain forms of payment were perishable, so they could not be
accumulated. The result was the emergence of coins made of precious metals. A
circular shape was adopted as being the most practical.
3. Paper Money and Banknotes:
Their function was to replace coins, because it was uncomfortable to carry coins in
large quantities. Banknotes were first used in China in the seventh century, but it was
not until 812 that their use became official. Until the 1970s, each issue of banknotes
by a country’s authorities had to be backed by a certain amount of gold.
4. Bills of exchange and checks:
Bills of exchange date back to 12th Century Italy. This document guaranteed that the
debtor would pay the creditor, or another person authorised to receive the money in
the commercial document. The origin of cheques, on the other hand, dates to around
the 18th century, and is linked to the English Crown.
5. Cards:
The first credit cards arrived in 1914, when the Western Union company created a
loyalty card for its most exclusive customers, giving them access to a line of credit
without surcharges. However, only from 1958 did banks started offering cards as a
payment solution. The first card came to be known as Visa.
6. Digital payments:
With the arrival of the Internet and the World Wide Web system in 1990s, goods and
services began to be sold through this new communication channel. One of the
pioneers was the company Peapod, which offered the possibility of buying groceries
from home via a computer. After the disrupted digital revolution of recent years, and
with the introduction of new technologies, it is now possible to pay by mobile phone
or digital watch. Mobile access and the internet have been transformational, allowing
the gains from technological progress to be shared directly with billions of individual
consumers whose mobile devices are now portals for accessing a full range of
financial services. They can also be extended by third parties via Application
Programming Interfaces (APIs). This massive decentralization is opening the door to
direct person-to-person transactions (P2P), and to the direct funding of firms
(crowdfunding). It has profound implications also for financial inclusion by permitting
“unbanked consumers in low-income countries to access financial services for the
first time.
7. Real Time Gross Settlement (RTGS):
These are specialist funds transmission systems where the transfer of money or
securities takes place from one bank to any other on a “real-time” and on a “gross”
basis. Settlement in “real time” means a payment transaction is not subjected to any
waiting period, with transactions being settled as soon as they are processed. “Gross
settlement” means the transaction is settled on a one-to-one basis, without bundling
or netting with any other transaction. “Settlement” means that once processed,
payments are final and irrevocable.
8. Cryptocurrencies:
Cryptocurrency is a digital payment system that doesn’t rely on banks to verify
transactions. It’s a peer-to-peer system that can enable anyone anywhere to send
and receive payments. Cryptocurrency payments exist purely as digital entries to an
online database describing specific transactions. When you transfer cryptocurrency
funds, the transactions are recorded in a public ledger. Cryptocurrency is stored in
digital wallets. Cryptocurrency got its name from the use of encryption to verify
transactions. This means advanced coding is involved in storing and transmitting
cryptocurrency data between wallets and to public ledgers. The aim of encryption is
to provide security and safety. The first cryptocurrency was Bitcoin, which was
founded in 2009 and remains the best known today. Much of the interest in
cryptocurrencies is to trade for profit, with speculators at times driving prices
skyward. Cryptocurrencies run on a distributed public ledger called blockchain, a
record of all transactions updated and held by currency holders. Units of
cryptocurrency are created through a process called mining, which involves using
computer power to solve complicated mathematical problems that generate coins.
Users can also buy the currencies from brokers, then store and spend them using
cryptographic wallets. If you own cryptocurrency, you don’t own anything tangible.
What you own is a key that allows you to move a record or a unit of measure from
one person to another without a trusted third party. Although Bitcoin has been around
since 2009, cryptocurrencies and applications of blockchain technology are still
emerging in financial terms, and more uses are expected in the future. Transactions
including bonds, stocks, and other financial assets could eventually be traded using
the technology.
There are thousands of cryptocurrencies. Some of the best known include:
• Bitcoin:
Founded in 2009, Bitcoin was the first cryptocurrency and is still the most commonly
traded. The currency was developed by Satoshi Nakamoto – widely believed to be a
pseudonym for an individual or group of people whose precise identity remains
unknown.
• Ethereum: Developed in 2015, Ethereum is a blockchain platform with its own
cryptocurrency, called Ether (ETH) or Ethereum. It is the most popular
cryptocurrency after Bitcoin.
• Litecoin:
This currency is most similar to bitcoin but has moved more quickly to develop new
innovations, including faster payments and processes to allow more transactions.
• Ripple:
Ripple is a distributed ledger system that was founded in 2012. Ripple can be used
to track different kinds of transactions, not just cryptocurrency. The company behind
it has worked with various banks and financial institutions.
• Altcoins: Non-Bitcoin cryptocurrencies are collectively known as “altcoins” to
distinguish them from the original. • Central Bank digital currencies: We are also
seeing a number of central banks look at launching their own central bank backed
digital currencies.
NayaPay
Established in 2016, NayaPay is said to be the first e-money institution in the
country, offering a fintech platform that enhances access to financial services for
underserved consumers and SMEs. The company has rapidly become a key player
in Pakistan’s digital finance sector, providing innovative solutions that cater to a wide
range of users, including students, freelancers, and digital natives.
For consumers, NayaPay has developed a chat-led super app that offers a variety of
services, including e-wallets, virtual and physical Visa cards, and convenient
features like everyday payments, money transfers, and bill splitting. The platform has
already onboarded over 1.8 million users, signifying its growing popularity. For
entrepreneurs, NayaPay offers access to business accounts, universal payment
acceptance and powerful financial management tools with an easy-to-open e-money
account and Visa debit cards.
NayaPay secured US$13 million in seed funding in 2022, and this year, the startup
was featured on Forbes Asia’s 100 to Watch list, recognized for its impact and
potential.
NayaPay has also made strategic partnerships to expand its offerings, teaming up
with Ant Group in April to enable its users to make payments to 80 million merchants
in China directly through the NayaPay app, and collaborating with Soneri Bank to
allow customers to transfer funds seamlessly between their Soneri Bank and
NayaPay accounts and make payments to NayaPay merchants directly from their
Soneri Bank accounts.
