The Fintech Boom and Digital Currency

When it comes to the financial sector, the cloud has been a major disruptive force, and we are seeing the results of that disruption in the exciting and explosive startup boom known as “fintech.”

Fintech is short for “financial technology,” and it applies to the adoption of new tools and new approaches by existing big players in the financial game, and also to the disruptive emergence of new products from startup companies.

This new thrilling era of fintech is enabled by — and is the inevitable result of — hard trends: more and more systems relocating to the cloud, users demanding mobile access, the growth of big data analytics, and massive increases in computing power. All these advances, and the growing demands they create, provide an amazing opportunity for bold invention and growth — that’s what I mean when I call this the fintech boom.

Startups are churning out new products to serve just about every aspect of the financial arena: commodities markets, mobile banking, trading, crowdfunding, retail banking, insurance, anything. Yes, I know. We’ve already seen the old consumer-facing financial institutions adapt themselves to the internet: online banks, online exchanges, nothing new, right?

That’s not what I’m talking about. What we’re witnessing is the development of a sector of entirely new services that have little precedent in the analogue realm. Financial institutions are taking notice of the ways in which fintech innovators are able to make their systems more efficient and competitive. We’re seeing the emergence of startups specializing in data analysis, cybersecurity, rapid aggregation, and more. They are transforming the financial industry in profound ways, and demand for their services has never been higher.

A report released by Accenture earlier this year found that New York is the fastest growing market for fintech in the US, and that investment is set to double in the next four years. Incubators like the Fintech Innovation Lab are providing resources and mentorship for innovators to get their ideas off the ground and see them developed into fully-fledged startups. And when I talk about the enormous demand for these products, it’s important to remember that we don’t even know what the limits of “these products” are. That’s the exciting thing about fintech: It’s a wide open world.

The variety and volume of innovation in the fintech sector has been staggering. One fintech startup leverages atypical sources, such as social media activity, to make credit assessments. Another builds consumer profiles based on patterns of web usage in order to rapidly detect fraud and identity theft. There are apps that integrate banking with voice commands and video conferencing; apps that offer translations and currency exchange engines to optimize international commerce; apps that change the way we buy, sell, trade, and live, in almost every conceivable way.

My sense is that a major area of growth will be the exploration and exploitation of digital currencies. Digital currencies are mediums of exchange that are electronically created and stored. In the case of Bitcoin, the most well-known form of digital currency, its value is secured by a transparent public ledger so users can personally keep tabs on how the currency moves and grows. I won’t say the wheel has been reinvented, but it’s certainly uncharted territory we’re in.

This is not a fad, or some outbreak of empty hype. We are witnessing the complete and inevitable integration of the financial sector with the cloud- and mobile-based world that our lives are increasingly bound to. This is a hard trend.

Thinking small is being timid. There is virtually no limit to the services fintech innovation can provide. Success in this realm will come to those who can answer a question that hasn’t been asked yet; to improve something that nobody realized needing improving.

How can you seize the advantage — as an investor and as an innovator — by being an early participant in the fintech boom? This is a high stakes question. The companies that fail to do so will be left far behind in the virtual dust.