The future of banking

Technology and finance have been closely linked since the invention of the telegraph enabled the first wire fund transfers. A century later, innovation is again poised to disrupt global markets. From the Blockchain, to cloud hosting, facial recognition and artificial intelligence, the future of finance is being shaped now.

Here’s a look at the continued innovation and evolution of financial technology:

1918: The Telegraph

The invention of the printing press – enabling countries to literally print money – was arguably the first example of fintech. But the 1835 invention of the telegraph and the laying of the first trans-Atlantic cable in 1866, marked major leaps forward, setting the scene for the globalization of finance.

In 1918, the U.S. deployed the telegraph as the basis for the Fedwire Funds Service, a proprietary communications system set up to process fund transfers among the 12 Federal Reserve Banks that remained in use until the early 1970s.

1950: The Credit Card

During the post-war boom years of 1950s America, Diners Club introduced the first consumer credit card. Other companies followed suit and over the next two decades much of the financial technology infrastructure we know today was put in place.

1960: Automated Teller Machines (ATM)

By the end of the 1950s, the global banking industry had settled on the technology standards that would lead to greater automation, adopting a system for machine-readable characters (patented in the U.S. for use with cheques) that would lead to the first automated reader-sorter machines. Banks began to invest heavily in IT as a way of reducing the manual processing traditionally carried out by a large clerical staff.

In 1967, Barclays became the first bank to build and install an Automated Teller Machine. Its so-called “robot cashier” allowed customers in London to withdraw money at any time of the day and, over the following decade, ATMs would proliferate and replace many of the functions carried out by bank tellers.

1971: Nasdaq

In 1971 the world’s first electronic stock market debuted. Known as the Nasdaq – for the National Association of Securities Dealers Automated Quotations – it marked the beginning of the end for fixed commissions and signalled a shift in investor expectations towards instantaneous trading and information.

1981: Online Banking (US)

The first steps towards online banking were taken in 1981 – the same year the IBM PC was launched. In New York, Citibank, Chase Manhattan, Chemical Bank and Manufacturers Hanover, began offering home banking via videotex, an early interactive computer service that transmitted text over the telephone. By the mid-1990s, widespread adoption of computers and web browsers enabled internet banking to gain momentum and quickly become ubiquitous.

1981: The Bloomberg Terminal

In 1981, Michael Bloomberg founded Bloomberg L.P. on the simple idea of building a network where both the buy and sell sides can access the same financial market information. They built the Bloomberg Terminal: one computer system that allowed investors the same real-time access to financial information at the same time, no matter their location.

Today the Terminal is the central nervous system of global finance, connecting decision makers to a dynamic network of data, people and ideas – and accurately delivering business and financial information, news and insights to 325,000 subscribers around the world.

1997: Mobile Banking

Driven by Nokia’s dominance of the mobile phone industry, Finland achieved many firsts in the 1990s, including the first SMS-based mobile banking service from the country’s Merita Bank.

2008: Robo Advisers

The emergence of the first robo-advisors from companies such as Betterment, Wealthfront, Schwab, Vanguard and TradeKing added investment advisors and wealth managers to the list of jobs threatened by automation. Advances in software and artificial intelligence have enabled robo-advisors to perform many of the tasks done by financial industry professionals, enabling companies to deliver low-cost services to tech savvy Millennials and other customers.

2009: Crpytocurrency

In 2009, the virtual currency Bitcoin was released in an online post by its pseudonymous creator Satoshi Nakamoto. Version 0.1 of the software included a generation system intended to create, or ‘mine’, 21 million bitcoins through 2040. It catalyzed a boom in digital cryptocurrencies that have been used by various market participants to bypass traditional fiat currencies and seen wild swings in value driven by speculators.

2009: Blockchain Technology

Bitcoin transactions are made possible by the Blockchain, which uses complex algorithms and consensus to verify anonymous individuals and organizations, enabling them to process transactions without the need for an intermediary or central bank.

Blockchain’s underlying distributed ledger technology has been seized upon by fintech startups and industry incumbents alike for its potential to provide a reliable alternative to current systems. Their aim is to create a system that decentralizes trust, removing the need for intermediaries and third-party validation and making transactions faster, cheaper and more transparent while increasing security.

2013: Artificial Intelligence

Artificial intelligence is at the fore of the latest wave in fintech innovation. In 2013, ANZ became one of the first banks to use AI commercially, deploying IBM’s Watson to help financial advisers better understand their clients. Hedge funds, asset managers and investment banks are also exploring its potential.

Bridgewater Associates is using AI to predict market trends in an initiative headed up by Watson’s former chief engineer. Goldman Sachs, UBS, Deutsche Bank and others are using third-party AI engines such as Kensho and Sqreem, for financial research, while BlackRock has developed its own AI engine, Aladdin, to assist investment managers and clients with decision making.

2015: Facial Recognition

Facial recognition as a way to authenticate identity is among the latest uses of biometrics in retail banking and payments. Among the more novel applications, Chinese e-commerce company Alibaba has introduced a “smile to pay” function that enables consumers to authenticate mobile payments using their smartphone’s camera.

2016: Cloud Hosting

In an industry often historically reliant on closed or proprietary systems, cloud-based software and technology is helping increase productivity, efficiency and mobility among employees. DBS Bank was the first Singapore bank to adopt cloud-based solutions, deploying Microsoft’s Office 365 in the workplace.

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