The first days of fintech

Fintech was a revolution born in the 1970s

In 1977, Fleetwood Mac released the classic album Rumours, the Great Buffalo Blizzard tore through upstate New York, and fintech was born. That summer, John Reed, then a young, rising executive at Citibank, had an epiphany while on vacation: the future of banking was in the consumer market.

Young people today might struggle to believe it but, back then, a major pain point for consumers was simply going to the bank. On a Friday, it was common to tell your boss you would be late back from lunch, simply so you could sneak to the bank before it closed at 3pm to get cash for the weekend. The foundation of Reed’s consumer banking strategy was a major capital investment in the installation of automatic teller machines (ATMs) throughout the bank’s branch network in New York City’s five boroughs. The technology for ATMs already existed, but it was too unreliable to be used at the scale that Citibank required to support its eventual tagline: “The Citi never sleeps.”

I played a small but memorable part in the strategic shift in focus of banking services from commercial to consumer markets. Manhattanites quickly took to the amazing convenience of the new technology. Yet even a few years after the bank had launched its ATM network, many in the ‘OBs’ – the so-called outer boroughs of Queens, the Bronx, Brooklyn and Staten Island – still preferred to stand in long queues to conduct their banking transactions with a real, live teller.

Through a personal contact, I was able to secure part-time jobs for some of my students to help Citibank increase ATM use outside Manhattan. They were paid to coax those standing in long teller lines over to the ATMs to show them how they worked. The big resistance was over depositing cheques or cash into these machines. Yet all this changed soon enough. Networks of regularly used ATMs spread across the world. For his part, the visionary Reed ascended to Citi’s chief executive.

I learned the hard way that China had skipped over plastic in its journey to cashless payments

Fast-forward to 2017, when I began teaching for a corporate education programme in Shanghai. On my first trip there, I quickly discovered that, outside my hotel, no business establishment would accept credit cards issued by foreign banks or card companies. Worse, the ATM in the hotel was malfunctioning and the ATMs in nearby bank branches refused to give cash to non-Chinese debit card holders. I learned the hard way that China had skipped over plastic in its journey to cashless payments.

Now we are at the dawn of fintech applications such as bitcoin and blockchain payments. What will be their rate of acceptance and usage? Since the time when the humble but highly utilized ATM made its debut, traditional commercial banks have had many threats and opportunities resulting from changing technology. Payment companies such as PayPal, Stripe, Venmo and Square have proven to be worthy competitors or partners to the traditional bank payments network. Apple Pay and Amex Mobile Wallet are trying their best to increase usage of their systems in my native US. But these services are nowhere near the level of the QR code-based payments mechanisms of Alipay and WeChat Pay, the two major mobile payments systems in China.

The world of bitcoin and blockchain payments might be even more bewildering to me and some of my generation than the ATM was for outer-borough New Yorkers. But will their adoption be as fast and encompassing as the ATM?

Judging from the valuation of bitcoin and other emergent cryptocurrencies, many are putting their money on it.

Phil Young is an MBA professor and corporate education consultant and instructor