Fintech is all about using technology to provide financial services.
It’s an area which uses innovations in technology to address a problem, make existing things easier, or introduce whole new opportunities that have never been really contemplated or possible before.
With our expertise as a leading international finance centre, Jersey is a natural fit for fintech, especially the areas of regtech, wealthtech, digital assets, and the technologies used to facilitate fintech.
Innovation and fintech
Innovation is one of those buzzwords that gets regularly used but can be hard to define. It is much easier to think of examples of things which were and are truly innovative, for example, the internet, email, mobile phones, and GPS are innovations.
In the world of financial services, these things when combined have transformed the way in which financial services firms can enhance their products and services. As new technologies emerge, firms have innovated, examples include the ATM, electronic payments, telephone banking, internet banking, and more recently apps.
Today, most innovation in financial services is categorised under the term fintech.
How do you define fintech?
In the context of financial services, we define fintech as:
- Technologies used and applied within the finance industry
- Something which enables a customer proposition or creates efficiencies within finance organisations
- Both start-ups and established financial and technology companies
- Subsets such as RegTech, WealthTech and InsureTech focus on specific areas of industry
What kinds of companies are involved in financial services innovations?
Innovation is also sometimes seen as the domain of technology start-ups or people working in their bedrooms or garages working into the night on the next idea that will ‘change the world’. Whilst that is often true, organisations big and small innovate.
You may be reading this article on a mobile phone which is likely to be the result of some pretty spectacular innovation in a number of bigger corporates, and maybe smaller companies too.
You are probably reading it wirelessly and the network you are reading it on will certainly have been the subject of innovation. And often with those really big innovations, companies will have collaborated to make it happen.
It’s often said that bigger organisations find it harder to innovate, with start-ups being considered more nimble, but innovation is certainly not limited to any one size of organisation.
How do larger companies manage to think innovatively?
In some cases larger companies which identify new opportunities and can adapt themselves organisationally and operationally – for example banks setting up challenger sub-banks, or airlines setting up low-cost subsidiaries.
Some firms have established innovation labs or hubs which are dedicated teams with a focus on creating new ideas, solutions, or ways of working.
Typically the teams have the structure and independence from their parent company to think and act like a start-up while benefiting from company-wide support and guidance.
Successful innovations can then be exported into the larger company, but this too is not without its difficulties, and we explore this more in detail in our download on fintech innovation here.
When did fintech start?
The emergence of the internet in the 1990’s created new ways for clients of financial services to interact with their provider, however at the time the technology was limited and there was not a significant client demand.
The emergence of smart phones and apps in 2007 changed the way most people use technology across all walks of life and this kickstarted the emergence of fintech.
At a similar time and in response to the 2008 financial crisis a number of regulators introduced new consumer protection regulation and sought to force competition by opening up markets to new entrants. It is these two factors which created the fintech boom we see today.
Why is innovation important? And how can we become more innovative?
It is difficult to think of many things which haven’t in some way been touched by innovation and technological innovation at that; reading papers, catching the bus, buying milk; they’ve all been changed. Therefore, sitting back and watching others innovate around you with your customers isn’t really an option.
Within your own organisation you may be aware of a process which needs improving, and perhaps have read about some innovation which may help. Or you may have thought of a whole new service line and might be interested in shaping an existing technology to make that happen.
Most of all, it is absolutely vital that you take the time to really understand the problem that you are trying to solve. There are lots of examples of technologies which were certainly great innovations but which didn’t really solve a problem.
Our download here which has been produced in conjunction with Digital Jersey has loads more tips on becoming more innovative.
wealthtech and regtech
Fintech can be broken down in to sub-sections, with each specialising in a different area within the industry.
In this section we provide information on our fintech focus areas of wealthtech and regtech. Or you can download our detailed explainers here for more information.
What is wealthtech?
Wealth technology, commonly shortened to wealthtech, is a subsection of fintech that focuses on providing technology solutions to companies who provide products and services to wealthy individuals or directly to the individuals themselves.
What can wealthtech do?
Wealthtech can be used in the following ways:
- Information: By using modern technology, wealth management companies can obtain and provide more up-to-date and accurate information. For example, firms are able to use real time currency exchange rates or share prices to provide their clients with information immediately and show fluctuations to an investment portfolio or pension.
- Communication: Technologies such as mobile apps and client portals provide individuals with around-the-clock access to information on their wealth. Many solutions also provide the individual with a way of securely contacting their wealth managers with queries and instructions.
- Investments: Greater levels of information allow for new products to be created that target specific industries or sectors. The use of artificial intelligence has allowed for companies to develop automated wealthtech solutions than can automatically act upon an individual’s instruction. Firms can also provide tools to model the impact of fluctuations in items such as exchange rates, share prices, or asset valuations on investment portfolios which provides a way or modelling actions before taking them.
What wealthtech solutions are there?
New wealthtech solutions are being launched all the time, the current main wealthtech solutions are:
- Portfolio management
- Digital brokerage
Download our Put Simply Guide to Wealthtech to read about each of these.
What is regtech?
Regulatory technology, often shortened to regtech, is a subsection of fintech that specifically focuses on providing companies with technology solutions which help them meet their regulatory requirements and processes.
Although the term regtech technically applies to all regulated industries its main use is within financial services. Financial services regulation refers to the rules and laws which have been put in place to protect consumers from unintended or harmful practices by financial services firms.
Why is regtech important?
Criminals, and those seeking to cause harm to a financial services organisations or their clients, are becoming increasingly sophisticated in the way they do things and the technology used. Regtech is an important way of using technology to protect firms and their clients by improving the way risks can be managed.
It is not mandatory to use regtech, the majority of checks and controls a business must follow can be done manually, however regtech can sometimes improve or even automate processes making them faster and cheaper.
Different organisations will have different risks that they want to manage, so will use different regtech solutions to get the benefits that meet their business needs, but the main benefit is improving the way an organisation meets their regulatory requirements.
What are some examples of regtech?
Emerging technologies, different regulations and different types of financial services activity, combined with the evolving sophistication of criminals, mean that regtech is an evolving area. The examples below are the most commonly used types of regtech by financial services firms in Jersey:
- Identity verification
- Client screening
- Transaction monitoring
- Trade and reporting solutions
Download our Put Simply Guide to Regtech to read about each of these.
What are sandboxes and regulatory sandboxes?
A sandbox environment is generally defined as a ring-fenced area where real world development, testing and trials of new ideas, products, and services can be undertaken.
Sandboxes, labs, or hubs allow the client to sign-up to help a firm with their exploratory ideas in the understanding that there may sometimes be changes to the product or times when the service may be unavailable.
A regulatory sandbox largely acts in the same way however the regulator is directly involved in the process and has oversight of the activities being undertaken.
To support fintech growth and adoption Jersey’s fintech sandbox is run by Digital Jersey.
Digital Assets and Cryptocurrency
At a very general level, digital assets and cryptocurrencies can be defined as non-physical electronic only items that are considered to have value to both a buyer and seller that can be exchanged.
Digital Assets are a new, technology enabled type of asset class which includes cryptocurrency.
More about digital assets
A digital asset is something of value that exists in electronic form, usually in the form of a token that represents ownership of all or part of a real world and non-electronic asset. In financial services these are often referred to as security tokens which relate to a tradable asset or utility tokens which relate to a set of permissions such as the ability to use a service.
Outside of financial services other forms of digital assets exist, such as the marketplace for the sale of virtual goods and items in video games which is a multi-billion-dollar industry.
The asset could be something physical such as a building, a bar or gold, or a piece of art, or it could be financial such as a token to represent debt. The token can be thought of as a share that can be traded between parties for all or part of the asset.
Cryptocurrency can be considered as a very specific type of digital asset.
Cryptocurrency definitions vary by place and organisation, but cryptocurrency can broadly be considered as digital money created securely by cryptographic code which has a value, meaning people are prepared to buy and sell the cryptocurrency. Other terms for cryptocurrency include virtual currencies, coins, altcoins, tokens, or crypto. Bitcoin is an example of a cryptocurrency.
Cryptocurrency is different to physical (or fiat) currencies in that it is not created by a central organisation, it does not use a traditional banking system, and its value is linked to what people are prepared to pay for it.
Trading digital assets
The process for a physical asset to become virtual is complicated and will vary based on the asset, the individuals involved. You can read more about it, as well as how to buy and store cryptocurrency, in our digital assets and cryptocurrency Put Simply guide.
Jersey’s digital asset proposition
Due to its long standing legal and regulatory framework and experience with digital assets, firms are using Jersey to deliver alternative investment opportunities:
- Investment funds and asset management
Distributed Ledger Technology (DLT)
Put simply, DLT is a digital method of recording of information over time.
Distributed Ledger Technology (DLT) is the technology that underpins digital assets – an example being blockchain, which is used by the cryptocurrency Bitcoin.
But that it not the only use of DLT.
Blockchains are just a particular sub-set of DLT with specific characteristics, whereas DLT can be thought of as the catch-all term for the underlying technology.
How is DLT different to other databases?
Unlike some forms of traditional databases, DLT can exist in multiple locations at the same time without one central, master database, this is the significance of the term ‘distributed’ in the name. The ‘ledger’ part is the information, and ‘technology’ refers to the way in which people can view and, in some cases, update recorded information.
What other uses of DLT are there?
Other common types of DLT are Ethereum, Hyperledger Fabric, IBM Blockchain, Ripple, and R3 Corda.
What is DLT used for today?
DLT is a relatively new type of technology and real-world use cases are emerging all the time. In addition to recording of a transfer of money or cryptocurrency, a DLT can be used when there is a need for information to be secure or where multiple untrusted parties are involved.
Providing permissioned or permission-less access is a way of providing transparency to those involved along with a full history of the activity.
- Cross border payments
- Supply chains
- Trade finance
Cyber and data security
Cyber and data security are important to ensure that businesses can protect themselves from risks.
Cybersecurity relates to computers and technology and preventing these systems from unauthorised access or misuse, while data security is an area which focuses specifically on the standards, policies, and technologies which seek to protect all forms of data that an organisation has collected.
How do organisations protect themselves and their employees?
Each organisation’s businesses, systems and people are different and there is no set way of ensuring total protection. Organisations will implement a combination of cyber and data security measures that align to the areas which are most important for them to protect. In addition to technology solutions, some of the best forms of protection are through policies and people.
Are there any recognised standards?
Yes, to support organisations in protecting themselves, their people, and the information held, frameworks and standards have been created. The most common of these are:
- ISO 27001
- NIST Cybersecurity Framework
- Cyber Essentials
Read more by downloading our detailed guide below.
What is a data breach?
The Jersey Office of the Information Commissioner (JOIC) defines a data breach as:
“A personal data breach means a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to, personal data. This includes breaches that are the result of both accidental and deliberate causes. It also means that a breach is more than just about losing personal data.”
Data could include information such as names, addresses, contact information, credit card or bank details, location or even biometric data.
Read more about data breaches and how to report them by visiting the JOIC website.
Where can I find out more?
- Jersey Financial Services Commission (JFSC) has information on how firms can understand their cybersecurity regulatory obligations
- Jersey Office of the Information Commissioner provides comprehensive information on data protection for organisations and individuals on all aspects of privacy and information rights of individuals in or with data held in Jersey.
- Government of Jersey Be Safe Online pages contain cyber and data security tips and best practice for businesses and Islanders.
- National Cyber Security Centre – the UK National Cyber Security Centre has a guidance page which provides 10 steps to cyber security.
We hope you have found this Put Simply guide to fintech useful. There is more detailed information on all the topics mentioned above in our guides in the download section, and for more information on Jersey’s fintech please visit our dedicated fintech pages.