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Could the financial industry’s evolution through the digital ages be the blueprint for its future? Konstantin Tserazov, a seasoned economist and the former Senior Vice President of Otkritie Bank, takes readers on an enlightening journey across the various iterations of the web — from the static pages of Web 1.0 to the immersive integration of Web 5.0 — and the concurrent transformation of fintech. Tserazov brings to light the profound changes in financial technology that have not only revolutionized how we conduct transactions but also promise a future where financial inclusivity and technological personalization go hand in hand.
From AI-backed personalized financial guidance to secure, seamless transactions authenticated by cutting-edge biometrics, the horizon of fintech shimmers with boundless opportunities. This realm pledges a more inclusive and streamlined financial ecosystem for all individuals. The Future of fintech gleams with opportunities arising through the Web transformation and everlasting generation shift. How did it start?
Web 1.0 (1991-2006) was characterized by the internet consisting of static web pages that users could look up and read. User participation during this period was limited, with interactivity mostly restricted to basic actions such as clicking links and submitting forms. The era saw a proliferation of plastic credit cards and ATMs. The potential use of the internet in the fintech sphere was very promising but was premature. Investors poured substantial funds into Internet service and technology companies in the early years of 1995-2000. Following the peak and subsequent crash of the dot-com bubble in March 2000, it took nearly 17 years for this sector to reach a new high, enduring an 82% drawdown along the way.
Web 2.0 (2006-2009) was a period when the internet became a bunch of dynamic web pages and platforms where anybody could upload their own content. The network connectivity of Web 2.0 enabled information to spread at an accelerated rate to a wide scope, creating viral demand for financial products. This period witnessed the rise of online banking, peer-to-peer lending, and the early stages of mobile banking applications.
Web 3.0 (2009-2016) heralded decentralization and distributed ledger technology (DLT), spearheading the era of cryptocurrencies, decentralized finance (DeFi), smart contracts, and non-fungible tokens (NFTs), reshaping financial landscapes fundamentally. In the beginning of 2009 Bitcoin went live. Stablecoins gained a vast adoption in the world, and crypto ecosystems started competing with the legacy financial institutions in the field of various financial services.
Web 4.0 (2016-2023) was the period of connectivity and vast data, epitomized by the ubiquitous use of mobile devices and cloud computing, gave rise to AI-driven financial advisors. In April of 2016 there was the public beta release of OpenAI Gym, a toolkit for developing and comparing reinforcement learning algorithms. This sets the stage for even more revolutionary changes with the onset of Web 5.0.
Web 5.0 (2023 – Future) is characterized by a deep interrelation of physical and digital worlds. Envisioned to be characterized by the fusion of human and machine intelligence, mixed, virtual and augmented reality, and further advancements in decentralized technologies, Web 5.0 heralds transformative shifts in fintech. Fintech in this epoch will likely concentrate on highly personalized financial offerings, seamless integration with the Internet of Things (IoT), and heightened security through biometrics and AI.
On February 19, 2024, the groundbreaking event of implanting a chip developed by Elon Musk’s Neuralink company into a human brain enabled direct control of a computer mouse through thoughts alone. This technology restores financial autonomy for patients with disabilities, allowing them to seamlessly conduct financial transactions and manage investments with the assistance of web-based banking services. This highlights the potential of technology to bridge the gap between the human body and the external financial world, marking the dawn of a new era in Fintech.
The implementation of Web 5.0 in Fintech will rest on the shoulders of Gen Alpha. As each generation has approached fintech with unique needs and expectations, we witness the changes in fintech style.
Fintech’s evolutionary path through different generations
Boomers, who value stability, initially exhibited hesitancy but gradually embraced convenient fintech solutions. Despite being older and typically more resistant to change, Boomers have increasingly engaged with Fintech. Boomers’ financial priorities primarily revolve around safeguarding their wealth for retirement.
Gen X, known for being pragmatic and tech-savvy, swiftly adopted online tools for enhanced efficiency. They are quick adopters of buy now, pay later (BNPL) options. Gen Xers also show a preference for banking via mobile apps, driven partly by the time-saving benefits it provides, which is crucial for those in the peak productive years of their professional lives.
Millennials seamlessly integrate fintech into their daily lives, advocating for innovation and accessibility. They gravitate towards fintech applications that simplify their financial routines, with a strong demand for mobile banking and investment platforms that prioritize user experience and simplicity.
Gen Z, who grew up in a connected world, are comfortable with intricate financial concepts and are shaping the future of decentralized finance. They eagerly explore novel financial instruments and services, relying heavily on social media for discovering financial products and making decisions. The rise in the use of the TikTok social app for sharing financial advice in recent years underscores the influence of social media as a financial services influencer for Gen Z. There is a notable preference among Gen Z for omnichannel banking experiences, showcasing their remarkable adaptability and willingness to experiment.
Gen Alpha witnesses how AI changes the way we interact with the external world, including financial issues. This generation is poised to redefine the financial services landscape as they grow up with the integration of AI and other advanced technologies.
Fintech: From first plastic credit cards to current challenges
At last, the evolution of fintech can be seen in phases, each marked by groundbreaking technological and industry advancements. The era from the second half of the 19th century to the 1970s of the 20th century witnessed the initial sparks of digitization and globalization, with the pantelegraph paving the way for the rapid transfer of financial data across borders. The introduction of the Diners Club credit card in 1950 laid the groundwork for future developments. Eight years later, the American Express Company joined the club with its offer.
The installation of the first ATM in 1967 marked a significant step forward. Four years later, the establishment of NASDAQ as the first electronic stock market signaled the emergence of key pillars of the modern financial system. In 1973, SWIFT (Society for Worldwide Interbank Financial Telecommunications) was established and maintained a leading and unchallenged role as a suitable framework for financial communications for years. SWIFT, launched to service transactions in various currencies, has actually symbolized the dollar-dominated global financial order.
As time progressed, the 2008 global financial crisis prompted a reevaluation of the nature of the global financial system. Basel III, new international banking standards developed by the Basel Committee on Banking Supervision, were swiftly implemented in response to the crisis. However, ongoing challenges led to the emergence of Basel IV, the implementation of which began in 2023.
In reality, the global financial legacy systems still feel the ramifications of the 2008 global financial crisis, exacerbated by the easing of monetary policies during the COVID-19 pandemic (2020-2023) in developed economies. The escalating rate of rise in U.S. public debt and elevated inflation in developed economies in 2023 prompted a number of countries to question the sustainability of the path along which the classical world financial system was developing. These concerns drew the attention of the Gulf Countries and many others to the importance of investing in fintech to build their own digital financial infrastructure. Despite the implementation of Basel III and Basel IV, the global financial system still exhibits vulnerabilities, as evidenced by the banking crisis that occurred in the United States in March of last year. Optimistic predictions that the crisis would be limited to small, regional U.S. banks were proven to be naive. By early 2024, the consequences of this crisis began to impact the balance sheets of several European banks.
However, amidst these challenges, fintech emerges as a beacon of hope. Its innovative solutions offer alternatives and alleviate burdens for both individuals and economies. Countries harnessing its potential stand to be leaders in the digitally-driven future of finance.
