Monday, 18 january 2021 | Redacción CEU
In the century we are living in, technological breakthroughs are emerging one after another, in a continuous way and at shorter and shorter intervals in time. The level of innovation that we are witnessing today is such that what catches our attention at this moment may become an ordinary resource tomorrow. This is a fact; we are adopting new technologies increasingly faster. This unstoppable and frenetic pace often causes us to overlook certain important details like what has been the path that has led us to incorporating that technology. Knowing its history and confirming how we have been integrating tech into our lives may help us to better understand the present and even to be more prepared for what might happen in the future.
This is the reason why today, on the CEU IAM Blog, we delve into the germ of financial technology. What is the origin of fintech companies? When has this bet on financial technology gained strength?
A short reminder about what fintech is
In case someone is still somehow lost when we talk about "fintech", we are referring to those activities that, as a result of technological development and innovation, give rise to new financial services or with an original approach. Therefore, fintech companies work in a multitude of fields in the financial sector such as investments, loans, counseling, money transfers, etc. Their great attraction lies in the fact that they have been able to take advantage of those niches that had been somewhat neglected by traditional banking. They have been able to do so thanks to their flexibility, agility and ability to adapt to the most specific needs of each client.
In recent years, fintech companies have been occupying an increasingly important place in the financial sector. Indeed, due to its pre-eminence and innovative commitment, some years ago at The CEU IAM Business School, we designed an Advanced Programme in Digital Economy, Fintech and Intelligent Society (online). Undoubtedly, this is a field with great potential that will continue to evolve and that in all likelihood will occupy an even more significant role in our society. However, where do fintech firms come from? How long have they been with us?
Looking for the germ of fintech firms
Although it is in the 90s when the term “fintech” began to be used, the origin of financial technology can be traced much earlier:
- In 1918, the US Federal Reserve banks adopted the Fedwire system. In this way, they went from physically making interbank transfers (with gold and cash) to processing funds through a system based on the use of the telegraph and Morse Code.
- In 1950, the next milestone that revolutionized the financial system occurred: the creation of credit cards. A few years earlier, in 1914, Western Union had created a card that offered its most distinguished customers preferential treatment and a line of credit with no fees. It was a system that was replicated by many companies, although they were only valid in their establishments.
The idea of credit cards came from a dinner in 1949 in which Frank McNamara, director of Hamilton Credit Corporation, forgot his wallet. The embarrassment he experienced, due to the fact that he had to call his wife to bring him the money to pay, was enough encouragement to devise this personal and save payment system. Just one card could be used to pay in many stores. Its name was Diners Club.