How Technology Came To Dominate Everything Money-Related

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We often think of technology as being something that dominates the software field. When you fire up your computer, all the apps, games, and streaming services require powerful underlying technology to make them run.

However, these days, the same is true of money. Practically every financial system now runs on a computer, and it is likely to stay that way for as long as we have the internet.

This process of money management has been underway since the first mainframe computers came online in the 1960s. Old-fashioned clerical jobs ceased to exist and banks and the rows of desks in downtown offices were replaced by computer rooms that did the number crunching for tellers.

This system went into overdrive with the invention of the personal computer and the internet. Now banks could better store and manage financial information, and even provide their customers with online portals they could use to perform various transitions. Compared to traditional approaches, it was night and day.

But that, of course, wasn't the end of the story. Technology slipped into everything money-related, changing everything about how people manage their finances and deal with their accounts.

Ecommerce And Mobile Wallets
A significant invention was the growth of ecommerce and mobile wallets. When eBay's PayPal first emerged, people saw it as a gimmick. But as it gained traction, it soon became apparent that it was more than met the eye. It allowed safer online transactions and reduced the issue of trust in many situations, which was a problem in the early days of the internet, especially in the 1990s when people still thought it was strange to order goods online.

Soon after the success of PayPal, numerous copycat products hit the market. Apple launched Apple Pay along with the iPhone, while Google did something similar with Google Pay, helping customers along. Alipay was another option, with wallets seemingly springing forth from virtually every company.

These changes then morphed into the success of ecommerce. With so many safe digital wallets, consumers became comfortable with ordering high-value products online, with some spending thousands of dollars on computers, clothes, and even yachts.

AI And Data-Driven Finance
A little later, the fintech industry soon cottoned onto the benefits of using AI and data-driven finance. Tech gurus began seeing its potential in detecting fraudulent transactions and credit scoring.

Methods had been around before AI and big data, but they were clumsy. Banks often operated on simple rules, and the bad guys regularly found ways around these strategies. It was sometimes possible to predict when a withdrawal would go through, and when it wouldn't.

However, better analytics changed this. Banks can now stop transactions in real-time and ask customers for additional verification, particularly if the behavior seems unusual.

This information is also useful for gauging an individual's financial health. Many banks now offer data-driven reports that replace the work of conventional financial advisors, showing their patrols where they are struggling financially, and what they can do about it. Apps can break down spending into categories and show what's going into different areas, like entertainment, leisure, and utilities.

Integrated Payment Portals

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Then there is the matter of integrated payment portals. These are becoming more sophisticated and enable individuals and businesses to benefit more from the digitization of money.

The most obvious example of this in action is the addition of digital points of sale in multiple settings. These can now be found on brand websites, invoices, and even social media posts. The technology reduces friction and allows customers to check out more smoothly without having to go between various browser profiles.

However, these integrations now go beyond this to provide even more functionality. For example, it is possible to sync Stripe to QuickBooks. This technology means transactions show up in bookkeeping software automatically, without the need to enter them by hand. It is also possible to include CRMs and other tools in these stacks, ensuring data is kept somewhere central for people to use.

Regtech
Regtech is also making itself felt and known in the fintech industry. It allows companies to make compliance practices simpler by automating them and providing alerts when actions don't align with local laws.

Most financial services are heavily regulated, which is why it is so challenging for new firms to enter the market. Some companies are attempting it, but they also need to protect themselves against a captured regulatory state that has the interests of incumbents at heart.

That's where more advanced software can help. These tools keep track of compliance-related issues and allow companies to avoid hefty and often arbitrary fines by state actors. Tools offer significant protection in jurisdictions with the rule of law.

Regtech in 2024 primarily works based on AI technology. These tools help make it less labor-intensive, freeing up staff to focus on other things and lowering labor costs substantially. The ability of software tools to flag issues allows humans to be involved in the loop when the situation demands it, but not otherwise.

Regtech also makes it possible to track internal bad actors – people who are actively working against the firm. These circumstances are hard for administrators to detect unless they can leverage self-monitoring AI tools.

Online Influencers
Interestingly, even the advertising and marketing of the financial sector and money is now something that's moved online. Influencers dominate the conversation, and relatively few mainstream alternative sources of information remain.

X, TikTok, and YouTube are ground zero for this content. These platforms provide the space creators need to talk about all aspects of finance, including those that are complex.

Social media influencers work across all levels of the industry, catering to various niches. Some deal with financial education and helping people learn more about managing their money and looking after it in the best way. Others are more interested in financial news and what's going to happen to the stock market next.

Which path individuals take is up to them, and many companies now work with these personalities to highlight their brands. However, there's no doubt that social media is an essential tool and has the ability to reach billions of people globally interested in financial products.

Fintech Startups
Then there's the key and pivotal role played by fintech startups. These companies recognize the value of technology in the finance sector more than any other brand, offering novel concepts and ways to bank compared to traditional institutions.

Revolut is an excellent example of this phenomenon in action. It allows customers to make international payments with ease, bypassing many of the transaction costs associated with conventional banking solutions.

Wise is another example. It integrates international payments with other facilities, like the ability to invest in stocks, shares, and risk-free assets, like government bonds.

Fintech startups have been successful in many countries because they recognize the value that technology can play in the sector. Investment can make banking and managing money more straightforward, as long as companies put effective systems in place.

For example, many of the top fintech firms have an interest in peer-to-peer lending. They want to make it simpler for ordinary people to finance each other. Others are building robo-advisors that can provide financial guidance to people in tricky situations. These leverage AI and sometimes an understanding of the underlying issues that drive investment decisions.

Blockchain
Of course, no discussion of the role of technology in finance would be complete without mentioning the blockchain, a core technology in the area. The immutable ledger concept can store transactions indefinitely and prevent anyone outside the system from changing them.

Blockchain is valuable in situations where trust is an issue (a bit like e-wallets). It can help transactions go more smoothly, as long as there is complementary real-world enforcement available. Unfortunately, blockchain doesn't work as a standalone technology and the idea of trading trustlessly with people remains a pipe dream for now. Physical assurances would also be required for the technology to be adopted more widely.

Furthermore, the failure of cryptocurrencies to dislodge conventional government money is another example of issues with the blockchain in action. While it might provide a secure basis for transactions, the underlying concept still requires enormous computing power, meaning that it can be slow in some instances. There's also the ongoing issue relating to the fact that governments won't accept crypto tax payments, reducing incentives to use these currencies further.

In summary, technology is now central to the world's money system and only a small portion sits outside of the various banking networks and server farms that deal with transactions. People who hold gold or cash in developing countries may be able to avoid it for a while. But it is clear that computerization is here to stay.

Going forward, this likely means better money management for consumers and firms. Companies will get the benefits of regtech and easy payment systems while customers can enjoy robot advice and digital banking solutions that make their daily lives more straightforward. The next evolutions in finance technology will likely be AI-generated, with more opportunities to infuse intelligence into the system.