Understanding FinTech

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Fintech, or financial technology … what does it mean? Who is leading the charge? And is your business ready for it? The buzzword holds many promises for businesses, institutions and investors in Australia and around the world – and risks and challenges too.


Deep Kapur first became interested in machine learning and its potential to aid analysis and decision-making in the world of finance in the early 1990s. This was not long after he’d completed a PhD in Economics and was starting to stretch his legs in the investment arena.

“I was working with a group of investment professionals and we were using machine learning, neural networks, and artificial intelligence techniques to see if we could unpack what drives the prices of assets in financial markets,” Deep recalls.

“We wanted to understand how to make better decisions and how to combine the insights that you gain from data analysis with human judgment to better invest assets.”

Appreciating the finer details of fintech

Deep’s interest in the potential and risks of digital technology for the finance industry – now termed ‘fintech’ – continues today.

A portmanteau of the words ‘financial’ and ‘technology’, fintech refers to the division of financial industry focused on utilising technology to improve financial activities and outcomes. Its reach is broad and rapidly evolving.

Any end-to-end, digitally-enabled, financially-focused software application comes under its umbrella – think peer-to-peer lending and borrowing; cryptocurrencies, blockchain technology, robo-investing, digital wallets, and artificial intelligence-driven products and services.

Back in the early 1990s, when Deep and his colleagues were using technology to understand more about financial markets, they were heavily constrained by computing power.

“There’s a significant probability that 10 years from now, the financial services industry will look quite different from how it does today.”

“We were using a piece of software that was developed in-house. It would take four days to produce an answer!” he laughs.

“Technological advances, access to cheaper storage on the cloud, and the availability of more technical talent mean that fintech’s capability is progressing in leaps and bounds. In the early 1990s, it wasn’t easy to find people to work on machine learning and algorithms. There’s a significant probability that 10 years from now, the financial services industry will look quite different from how it does today.”

Fintech’s phenomenal growth over the past decade suggests he is right. Between 2008 and 2018, global investment in financial technology increased more than 2200 per cent from $930 million to more than $22 billion.

Putting his industry experience into research practice

Over the past three decades, Deep has become one of Australia’s – and the world’s – foremost finance and investment experts.

In November 2017, he was appointed director of the Australian Centre for Financial Studies (ACFS), a not-for-profit research centre affiliated with Monash Business School, where he is a Professor of Practice.

The ‘practice’ aspect of his title is reserved for academics with a distinguished professional background. Like Deep, most Professors of Practice don’t have traditional academic backgrounds, and are skilled at integrating academic research and scholarship with practical experience and outcomes.

Deep has held managing director positions with Salomon Smith Barney, Citigroup Global Markets, Daiwa Capital Markets and event-driven hedge fund group Symphony Financial Partners.

He specialises in institutional portfolio management, principal investing, research, advisory and business administration, impact investing, hedge funds and venture capital.

Of current interest are investing and superannuation at home in Australia, and around the world – and, of course, fintech.

Getting our heads (and systems) around blockchain

In May 2018, the ACFS released a series of papers, Funding Australia’s Future – Fintech, that explores the growth of fintech, its implications for the structure of the financial sector, and the value it can produce for the broader Australian community through increased competition in the financial services sector.

The series is the result of multiple research collaborations initiated by the ACFS in 2012, including with the Department of Economics and the Department of Banking and Finance, both at Monash Business School.

Of all the emerging technologies that come under the fintech heading, Deep thinks that decentralised shared ledger infrastructure, also known as blockchain, has the greatest potential to impact the finance and investment industries.

“I think there is a non-zero probability that it will be possible to use that technology to facilitate transactions in assets that do not require an intermediary such as a stock exchange for settling trades, or a bank for settling foreign exchange transactions,” says Deep.

In Funding Australia’s Future – Fintech, the ACFS concludes that distributed ledgers such as blockchain are an “important new technology” that will likely find a wide range of applications. Their key advantage is they allow remote verification of transactions – effectively a concrete audit trail that provides parties with the certainty they need to undertake a transaction – without any previous assumption of trust between the parties. Significantly, they also allow for transactions without any sort of verification by a centralised authority such as a stock exchange or banking institution.

Taking action to prepare for the future

Actions being taken by some of the world’s biggest financial institutions align with the ACFS’ findings. Leading US stock exchange, Nasdaq, has a number of initiatives underway. The Moscow Stock Exchange is in the process of creating a blockchain-based e-voting system for bondholders. The London Stock Exchange has partnered with IBM to develop a blockchain-powered platform that can digitally issue private shares of small and medium enterprises.

And in Australia, the Australian Securities Exchange (ASX) was one of the first securities exchanges to show explicit interest in blockchain. In early 2016 it partnered with renowned blockchain start-up Digital Asset Holdings, even purchasing a five per cent equity stake in the company, to develop a new blockchain solution for the clearing and settlement of trades.

Deep’s advice, then, for businesses, institutions and investors who are failing to get their heads around blockchain’s promises and pitfalls?

“Let’s say you are a stock exchange today and you choose to completely ignore blockchain,” he supposes.

“In the future, the whole financial infrastructure of investment banking might look very different and we need to be positioned for that. If you don’t, it’s very possible that you’ll wake up one day and discover that you quite literally have no business because there’s an infrastructure that renders you obsolete.”

This article was published by BBC future. Read the original article.