The term FinTech was one of the words that everyone began using last year, but this year, without a doubt, one of the hot keywords of 2016 is BlockChain. If this is the case, what is the importance of this term in relation to the emergence of FinTech?
FinTech is a combination of the terms finance and technology. FinTech offers direct financial services through IT systems and generally refers to comparatively small and medium sized companies that offer services indirectly through financial firms. It focuses on ICT (Information Communication Technology) along with other technologies with emphasis on startups and small to medium sized companies as opposed to large firms.
In developing markets such as South Korea, FinTech is often utilized to deliver one-off products with specific technology or offer services under the brand of a financial institute through cooperation with the firm instead of FinTech companies offering direct services independently.
However, as the financial crisis of 2008 began and the major Wall Street financial institutions lost the confidence of consumers, huge public funds were introduced. When it then came to light that these financial institutions were still providing high salaries and large bonuses to executives, financial consumers began a movement in 2011 on Wall Street using the catchphrase ‘We are the 99%’.
The Occupy Wall Street movement was a temporary expression of anger by consumers aimed at the financial institutions and related government institutions. Various foreign press outlets reported that continued and long-term efforts for change after Occupy Wall Street allowed for active foundation of FinTech businesses and connected venture capital firms with investments.
If we take a look at this type of activity and connectivity, the service model of many foreign FinTech firms is to play the role of middle-men performing financial disintermediation, which in actuality replaces the role of financial institutions by connecting consumers directly with suppliers.
Ultimately, the immergence of many global FinTech companies can be seen as a disruptive innovation that inhibits the harmful system of centralized financial transactions that monopolize fees and information that are taken for granted by governments, financial firms and other organizations with similar invested interests.
With the use of the Internet, mobile devices and other new technology becoming more common, phenomena such as financial crises and negative views of existing systems are becoming more clear. FinTech, which concentrates on economic liberalization and demands political and, even more, economic democratization, is receiving interest and even capital from existing financial institutions and government authorities expanding it into the mainstream.
Then, are the demand and popularity of a decentralized model that eliminates the middle-man exclusive to financial services? So called P2P (Peer to Peer) platform and sharing economy platform services such as the short sharing economy models Uber and Airbnb, the long term trade model Craigslist and the selective sharing economy models KickStarter and Zopa have been at the validation step of successful business models since their emergence in the mid 2000’s.
These platforms offer marketplace functionality that helps form an even playing field for suppliers and consumers through ICT by eliminating the need for the traditional manufacturer-consumer relationship.
In the book ‘Zero Marginal Cost Society’, Professor Jeremy Rifkin from Wharton School in the US predicts that the coming 3rd industrial revolution involving Internet communication, energy and transportation will allow companies to reduce marginal costs to almost zero and make it difficult for new companies to enter the market.
This concept is easy to understand when considering how simple it is to share media such as music and movies through platforms such as Soribada and Napster. If this phenomenon were to occur, existing firms would be able to raise prices through monopolization of the market and price policy would have to be made to distribute fixed costs equally to consumers.
Eventually, platforms such as Apple’s iTunes offer a music file payment service and distribute a fixed amount taken from fees they receive from consumers to the suppliers (artists, music distributors). This service offers an economic incentive to suppliers to continue to create and distribute music.
Uber, established in 2009 in San Francisco, offers a mobile app service that connects their drivers with customers. This service was the true beginning of Sharing economy in the transportation industry.
In 2014, Uber earned approximately USD 400M in over 300 cities and through external funding in July of 2015, Uber became a leader as a sharing economy model business by exceeding Facebook with a enterprise value of over USD 50B.
Airbnb was established in San Francisco in 2008 and offers a service that connects travelers with people with rooms for rent in over 34,000 cities in 190 countries. In March of 2015, the company was evaluated at US 20B.
From sharing cars and rooms, Kickstarter offers an even newer sharing economy model that allows people to share ideas and funding. Since 2014, Kickstarter has progressed with approximately 20,000 projects, 780,000 investors and generated approximately USD 1.5B in investment capital.
With these types of companies, the sharing economy model is making a meteoric rise in all industries. According to the accounting firm PwC (Pricewaterhouse Coopers) the scale of the sharing economy market in fields such as P2P lending, crowd funding, automobiles, housing, media and manpower sourcing is expected to grow from USD 15B in 2013 to USD 3,350B in 2025, which is an increase of over 20 times.
In the case of the software industry, OSS (Open Source Software) that gives unlimited access to code for people to study, use and distribute reduces costs to consumers by approximately USD 60M
OSS was referenced in ‘The Cathedral and the Bazaar’ written by Bostonian Eric Raymond in 1997 in his discussion of the hacker community and free software principles.
Netscape released the Internet browser Netscape Navigator and it is being implemented in both Mozilla Firefox and Thunderbird.
Recently, not only software but open source hardware has emerged with success in the IoT (Internet of Things) Market. The circuits, material specifications and assembly planning for hardware is being shared for electronics products without patent licensing or with patent licensing included so that anyone can cheaply acquire the technology and implement it into new products.
In this environment, various open source hardware platforms such as Arduino and Raspberry Pi are being vitalized by the online information sharing community and are being implemented with digital manufacturing technology such as Drone and 3D printers.
Companies like LG CNS are implementing BlockChain technology in the IoT field and making efforts to support communication between machines and devices without human interaction for Decentralized Autonomous Service or Organization functionality.
Sharing economy is expected to not only connect people with BlockChain technology for public ideological discussion and technological open source and P2P but services will also connect machines as well.
In the next article, we will discuss examples of how BlockChain technology and financial services can be implemented.
Written by Seungeun Baek, LG CNS
 Occupy Wall Street (OWS) is the name given to a protest movement that began on September 17, 2011, in Zuccotti Park, located in New York City’s Wall Street financial district, receiving global attention and spawning the Occupy movement against social and economic inequality worldwide. It was inspired by anti-austerity protests in Spain coming from the 15-M movement. [Wikipedia] [back to the article]
 Venture Capital: Money that is provided to seed early-stage, emerging high-growth companies. Venture capital funds invest in companies in exchange for equity in the companies they invest in, which usually have a novel technology or business model in high technology industries, such as biotechnology and IT. [Wikipedia] [back to the article]
 Disruptive Innovation: A disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leaders and alliances. The term was defined and phenomenon analyzed by Clayton M. Christensen beginning in 1995. [Wikipedia] [back to the article]
 Open Source Software: Open-source software (OSS) is computer software with its source code made available with a license in which the copyright holder provides the rights to study, change, and distribute the software to anyone and for any purpose. Open-source software may be developed in a collaborative public manner. Open-source software is the most prominent example of open-source development. [Wikipedia] [back to the article]