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Welcome back to our course on FinTech foundations and overview.
Today in our session,
I'm going to talk about FinTech for consumers.
And I decided to talk to myself or talk to you as a FinTech consumer.
And the reason that I feel like I'm qualified to talk from
a consumer perspective is that I am a dinosaur and a pioneer.
I've been around a long time.
I've dealt with technology a long time,
but I was using,
training and buying and selling things on the internet before there was a web.
Back when we use Usenet or we used old school technology, I was on the Internet.
I was on e-mail and most people didn't have it,
and I was a early pioneer.
I was using online banking in 1995 with the first Internet bank in the world.
And so, I've been doing FinTech kinds of things using e-trade and others for a long time.
What do I like about technology and finance?
What drives consumers?
Now, not all consumers are like me.
Some are very young people like we have with our discussion of FinTech for investors.
But what's really driving this move to technology is convenience?
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24/7, any location in the world, anywhere, anytime,
anyway, and speed, I want trades fast.
I want to be able to do things.
I want to be able to use automation.
I like tech.
I like the capabilities of advanced technology.
Now, let me talk for a moment about early tech in FinTech.
An early example of technology and convenience was Security First Network Bank.
Security First Network Bank was the first what we might call
Direct Bank or branchless bank in the United States.
It was a bank that had no branches, had no services,
the first Internet-only bank to be approved by the FDIC and insured by the FDIC.
They used Internet technology in 1995 to bring out online checking,
online accounts, you could access any ATM anywhere in America for free.
You could do deposits by mail or wire in
money if you chose to from another bank for free.
Bank services were free and very convenient.
You could have bill pay for free very conveniently.
Now, you may say, "Yeah, so what?"
I have dealt with my bank today.
Well, that's interesting and it illustrates an important concept of FinTech.
Security First was first to offer branchless banking and
Internet-only banking because they have a low cost structure,
they could offer services free that
other banks charge for like checking accounts used to cost money.
Security First gave them three and that was pretty good.
And they offered technology in a time when banks were saying,
"I don't think we can do this.
This is not secure."
Security First started as a software company.
They started in the encryption and military systems area and that technology people said,
"I wonder if there's something in business we could do that needs
secure Unix because we know how to do that," and they came up with banking.
And so they launched the world's first Internet bank.
Consumers loved it. Within a year,
they had customers at every state in America.
They were one of the fastest growing branch.
One of the fastest growing banks in America, very fast drove.
Their stock price exploded.
Of course, this was during the dot-com boom or leading up to the dot-com boom.
But the price went up and up and up as they kept gaining more and more investors,
more and more customers,
more and more enthusiasm.
Banks started investing in them and saying,
"We don't know where this is going,
but this looks exciting.
This is new tech.
This is a new opportunity."
What happened to Security First?
Well, within about three years,
they were no longer alone.
By 1998, 1999, other banks started coming out with online banking.
Now, they had three to four years by themselves to grow fast, to get attention,
to get exuberance, and other banks were sitting back and saying,
"I wonder if they're going to get hacked.
I wonder if they're going to go under.
I wonder if this is going to melt down.
I wonder if this is going to be a problem."
And Security First proved that they had really good security and they could make
Unix and the Internet a secure banking environment that no one could break into.
That was important.
Other banks said,
"We think we could do that."
And so they got on the tech bandwagon and we saw Bank of America,
Citibank, Wells Fargo, US Bank, HSBC,
and many other banks opening up Internet banking services,
checking accounts online, other services online.
That was a problem for Security First because what happened
is that consumers who loved FinTech or they loved their branchless banking,
it turns out they would rather have free Internet banking and a branch,
then free Internet banking without a branch.
It wasn't that they didn't like the branch.
It wasn't that they didn't like their bank.
They wanted the convenience.
They wanted the services.
It's not that we want just stock trading online and no one to answer the phone,
no customer service, and no place to go into.
Security First went from raising
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about $10 million early in their history to being worth about five years later,
when they were bought out and merged into another company
after the dot-com crash, about $516 million.
And that's after the crash and after they have sold other parts of the business.
So, this is a success.
This is a good firm and it's a good service.
Bottom line, what do we want?
We want convenience.
We want to be able to trade anywhere.
We want to be able to buy and sell things.
We want to be able to move money around from one account to another.
We want what WeChat can offer in China,
or we want what Apple can provide us or what PayPal can provide us.
The ability of PayPal came up with lots of ideas for
banking services and the CEO of PayPal said,
"We have lots of ideas but it turns out what people wanted was to be able send money from
one person to another via email and they couldn't do that via traditional banking."
So, PayPal came in because banks weren't there.
What we want is a convenient attractive services as consumers,
and FinTech is fast in
pioneering coming up with new ways of doing business and it opens up new doors.
Some people have said nothing is new.
I would say some things are very new.
Some things are very innovative and very exciting
and there's things that we can do today like crowdfunding,
interacting with companies, in ways we never would see before.
There are currencies that allow us that proliferation of options to invest,
speculate, lose money, make money.
That's exciting. That's new.
It may also be very risky.
There's new opportunities for interacting with services and just aggregating services.
I can put an algo trader on my PC and do things as an investor that I never could before.
Big banks could do it. I couldn't.
And so, as an investor, there's opportunity.
As a consumer, this is a proliferation of flexible,
convenient, attractive offerings that I could never have without this FinTech revolution.
Finally, 10 years ago,
the banking services melted down and banks got scared.
They were trapped and they started looking inward and being cautious.
Ten years ago, Apple brought out the iPhone.
In that time, banks have become more inward looking
and tech firms have developed a proliferation of applications.
An explosion of applications that mean consumers look to and trust Amazon,
Alipay, Tencent, eBay, PayPal,
as much or more than they do their banks.
In fact, many millennials don't even want to deal with banks.
Survey was done with millennials saying as consumers.
Which would you prefer?
Would you prefer to go into your bank and sign loan documents?
Or, do you prefer to go to the dentist and have a cavity filled?
And then, the majority of millennials surveyed said,
"I'd rather go to the dentist."
This is a problem for them.
They like Amazon.
They don't like their bank,
because Amazon is convenient.
Amazon is fast. Amazon as easy.
The bank is trouble.
And so, that's what we want as consumers.
We want easy, fast, convenient,
powerful, flexible, adaptable, innovative.
That's what we're looking for and that's exciting.
And the tech is not new.
Many of these techs have been around a while but the applications,
those are revolutionary and they're going to change the future of banking. Thank you.
Theodore Henry King CLARKAssociate Professor
