Book review: Fintech: The New DNA of Financial Services (P. Gupta & T. Z. Tham)

I recently received a new book, Fintech: The New DNA of Financial Services, published by Walter de Gruyter. It’s an edited volume compiled by Pranay Gupta and Tze Mandy Tham in their effort to educate a broader audience on the terminology, concepts, and implications of fintech at large. Fintech – a fusion of technology, finance, business models, and mathematics and computer science – is producing an unprecedented change to the financial services industry in a similar manner as transportation, books, hospitality, telecommunications, media, retail, and software vendors have been disrupted and disintermediated by new technology-enabled capabilities. Things are moving fast at the fuzzy front end, but there is always the puzzle of the sticky back end, and consequently, it’s vital for incumbents to understand their current positioning in the midst of adopting new technologies. It is ultimately the consumer who is really driving the disruption forward, and therefore it’s crucial for firms no to “push” services they want to provide, rather tailoring various services to meet client needs.

Gupta and Tham have compiled a great book, rather a tome, that is organized into four parts comprising a total of 26 individual chapters. Numerous authors all around the world have contributed to the book, and while it seems that most of the articles are written by people who reside in Asia, largely in Singapore and Hong Kong, Gupta and Tham have managed to collect an extraordinarily concise and deep introduction to the world of fintech in all its colors. There are articles written by consultants, industry experts, entrepreneurs, thought leaders, regulators, and consultants. The book basically covers everything – and a bit more – you need to know about the fintech and fintechs from fintech in the context of the digital economy to alternative data in portfolio management and everything in between. There is something for everyone in this book, whether you want to learn about the disruption in investment management or understanding how regulatory technology can be applied in the context of client lifecycle management and KYC/AML. The rapid advances in artificial intelligence and machine learning, data science and big data, and cloud computing are covered as these are essential topics on their own, but besides, they are situated into the context of the financial services industry.

Considering that the book is intended to provide the reader with an overview of fintech, some chapters, such as those dealing with  with some grasp of the financial services industry, some chapters such as those dealing with machine learning and artificial intelligence, cloud computing and data science and big data, are light in the domain knowledge of financial services and finance and can be a bit hard to follow by those who are not familiar with these issues but might be enjoyable to read just out of general interest. In this review, I will mainly focus on Part 1 (overview of the disruption to financial services by fintech) and Part 3 (fintech innovations and disruptions in the asset services, capital markets, and investment management industries) of the book.

An overview of fintech

The first part of the book delves into the ongoing disruption of the financial services industry, introduces the ten enables of the digital economy, and provides an overview of the current dynamics of the fintech and fintechs. In Chapter 1, Pranay Gupta argues that the role of the financial services industry as a middleman is being challenged as its business model and processes are “about to undergo a profound change with the advent of fintech, or financial technology, as a discipline” 1)p. 3. By referring to fintech as a discipline, Gupta is echoing Paolo Sironi’s earlier ideas on the fintech operating in the intersections of finance and technology. According to Gupta, fintech as a discipline relies on data capture, data analysis, and intelligence and implementation that might result in new business models “either within or outside the incumbent financial services institutions.” 2)p. 5 Gupta provides a short overview of the evolution of financial services activities and highlights the fact that the rise of financial technology is affecting pretty much every financial services institution, whether it’s acknowledged or not. Gupta says that the capability for financial services companies to act like the market.

It would have been much appreciated if Gupta had provided a more elaborated conceptualization of fintech in the very beginning of the book instead of focusing on specific capabilities or instance of fintechy things. The fintech landscape is developing fast, and therefore, it’s crucial to understand what fintech actually is. There is a myriad of definitions, and it would have been essential for Gupta at least point out that there is no agreement about the precise scope and bounds of fintech at the moment. It is, on the other hand, necessary to keep in mind that the book is a volume consisting of 26 separate articles. It would have been somewhat difficult and maybe even somewhat unnecessary to make sure that everyone will share the similar conceptualization of the basic definitions, but just from the practical standpoint, it’s actually imperative to know what are we talking about when we talk about fintech in different contexts. 3)see Schueffel, P. (2016). “Taming the Beast: A Scientific Definition of Fintech“. Journal of Innovation Management 4(4): 32-54; Varga, D. (2017). “Fintech, the new era of financial services“. Vezetéstudomány – Budapest Management Review 48(11): 22-32

In the next chapter, Sopnendu Mohanty from the Monetary Authority of Singapore takes a look at fintech in Singapore from the perspective of the Monetary Authority of Singapore. Although Mohanty mainly focuses on fintech companies and solutions, it’s noteworthy that he can combine his local experiences and knowledge to provide a more comprehensive contextualization of the digital economy. Mohanty says that the transition to the digital economy is driven by ten basic examples that he investigates at a more detailed level. Mohanty takes a look at things such as trusted digital identity, trusted digital data, customer consent architecture, policy-making by experimentation and empirical data, and so on and so forth. It was actually pretty refreshing to read a general overview of the Singaporean fintech landscape. Plus Mohanty also looks at specific difficulties policymakers, as well as fintechs, are facing. Even though I disagree with some proposals that Mohanty puts forward to drive the fintech revolution forward, I really liked this chapter.

In Chapter 4, Pauline Wray and Simin Liu, lead analyst at Expand Research, provides an excellent overview of the fintech landscape. They cover the landscape, funding, and investor trends, incumbent responses, and looks at the major themes of the near future. Wray and Liu start by covering the funding and investor trends from multiple perspectives. They show how APAC and EMEA area fintechs have been raised record funds in the past several years while the Americas, although still the single biggest fintech funding market, has lost its relative dominance against APAC and EMEA geographies. There are also striking differences between the geographies in terms of business models and product clusters being funded. For example, fintechs equity funded in APAC are classified mainly as disruptors while payments, technology, and lending and crowdfunding as fintech product clusters have attracted most of the funding to date – that is nearly 70 percent. VCs and PEs are the principal investors in fintech, but in recent years numerous specialized fintech accelerators have been established all around the world.

The role of the TechFins, also called non-financial native digital giants, is also shortly discussed. Companies such as Google, Alibaba, Amazon, Facebook, etc. are nowadays actively engaged with fintech-related activities. As Wray and Liu show, numerous interesting platform companies in Asia are operating in the intersection of technology and financial services industry. Changing consumer behavior, regulatory shifts, and new technologies have paved the way for a group of companies, such as Ant Financial, Tencent, Ping An, and others, to move and grow fast especially in China. This is not a trivial process, as these Asian players are expected to adopt different strategies (niche vs. mass) to expand domestically as well as internationally. Different Asian platform companies have taken different platform strategies as well as business models, and many of these Asian (mainly Chinese) companies operate in various sections of the ecosystem ranging from payments to savings and investments.

The first part has two precise purposes and is very much directed to people who want to have a concise overview of the current global fintech landscape from an Asian perspective. However, the first part is also intended as an explication of the complexities involved with fintech, with each chapter having some overlap with others, followed by relevant sources and information. The format makes the first part, and pretty much the whole book, a general introduction to fintech, particularly related to industry executives, experts, policy-makers, regulators, and entrepreneurs as well as to academia. Although I am pretty familiar with the general fintech storyline and developments, especially in the capital markets infrastructure, investment management, and digital wealth management, I found something exciting and new from every chapter.

Part 2 covers the enables of the digital economy from various perspectives and also provides some use cases in addition to the general overview of for example digital identity, blockchain, and distributed ledger technologies as well as machine learning and artificial intelligence. If you want to better understand the technologies and their implications, please check out Part 2 as well.

Fintech innovation and disruptions

The third part of the book is basically all about things I personally like ranging from asset servicing to portfolio management and crowdfunding and lending. Unfortunately, the first chapter of this part, namely Chapter 13, did not actually offer anything new. This is actually somewhat stylized, updated and shortened copy of a report published by Deloitte a few years ago, so its content has already become slightly outdated. Nonetheless, it provides some basic views about the ongoing changes in the asset management and asset servicing industry.

Chapter 14 has been written by a large group of contributors from Saxo Bank. You can read more as a historical background to understand the current situation in the capital markets, and how did we end up here and what is going on right now in the equity, FX, and fixed income markets. Also, there are references to open banking as well as some interesting speculation about the future of the capital markets industry in general. An analysis of the late 20th and 21st century is very much welcomed as it serves to illustrate the continuous change of the industry. “Building a digital bank from scratch will not be done primarily through M&A, but through the delivery of a unique value proposition via the aggregation of an easily interchangeable range of resources and capabilities, only the most quintessential of which will be developed in-house,” writers argue.

These two chapters are followed by Pranay Gupta’s deep dive into investment management (Chapter 15), a pretty nice overview of robo-advisory and multi-asset allocation by people from StashAway (Chapter 17), and an excellent exploration of the wealthtech space by Steve Tsu-Wei Yang from Privé Technologies. I highly recommend reading these chapters three in detail if you want to understand what is happening in investment management and digital wealth management. I won’t go to the details, but I actually found a lot of interesting insights and some additional articles and book I need to check out later.

Good general introduction; great contribution to the literature

As I have tried to indicate in this overview of the book, this book has a grand scope in terms of the latest developments and range of issues covered. Rather than providing an overly clinical and detached overview of everything that is going on in the fintech world, the editors have managed to compile an excellent introduction to different aspects of the ongoing changes in the financial services industry. The contributors are not the same, and they come from very different backgrounds and provide complementary viewpoints to make better sense of the past, the present, and the future of the industry.

The volume and the selected approach is simultaneously inspiring and somewhat frustrating. It is inspiring mostly because the book sheds much-needed light on the financial services industry and provides anyone the opportunity to understand the ongoing changes from very different perspectives, thus inviting the readers – finance practitioners and everyone else – to really think about the things that are already happening and not to be afraid of the technology that makes it possible to things more intelligently, productively and cost-efficiently. It must also be remarked that the book as a whole is highly instructive and intellectually stimulating, as most of the articles probably contain something that you didn’t previously know or realize, and some include excellent use cases that might stimulate some readers to experiment and learn.

There is no doubt that this book is a significant contribution to those who want to understand the fusion of finance and technology. My frustration comes from the feeling that there is way too much to read, and some writers have merely scratched the surface of one specific issue before already moving on to the next question. For instance, given the unquestionably notable importance of regulatory technology (RegTech) and open banking on the future of the financial services industry, readers like me who are looking for in-depth systematic exploration of the effects of the open banking and regulatory technology may be somewhat disappointed. Readers approaching different questions around fintech may instead wish for more analysis concerning regulatory technology applications or neobanks and challenger banks in the era of open banking.

However, to continue on the critical note, it’s somewhat unfortunate that there some chapters in the book that are adapted from old, already published materials or that do not focus on the financial services industry (.e.g Chapter 5 on cloud computing). Also, I would have liked to read more about success (and failure) stories about fintech and fintechs, and especially, what can be learned from past experiences. It would have been beneficial also to highlight the regulatory complexities involved in various situations. How does, for example, a fintech company become a regulated financial entity, and what are the main reasons that previously unregulated “borderline” entity might want to become regulated? Many hurdles of the current regulatory environment challenge both the incumbents and entrants to mitigate the operational and regulatory risks. So, while legal implications of fintech were covered, risk management, in general, was unfortunately missing.

I am not saying that this is the fault of the contributors or the editors, and furthermore, it would not be appropriate to point out that something is missing as the book does cover a lot of ground. Readers must understand this book as it is: an ambitious endeavor to explore and understand the impact of new technologies, business models, ideas, and partnerships on the financial services industry. I would, however, have hoped that the editors, namely Mr. Gupta and Ms. Tham, would have written a concise summary to the end of the book to motivate and encourage further explorations.

To conclude, I found this book to be a very enjoyable and thorough (semi-scholarly) introduction. I hope that people will find it and read it as it’s not overly technical, and thus readers with no prior knowledge about fintech might find it exciting and engaging. While there are some inconsistencies in terms of some small things here and there (e.g., a table of contents is a bit mixed up), this book is an impressive collection of knowledge, experience, and ideas. It was easy to skim and read, partly because of the very structured style, with many tables and figures to make it easy to read and digest. I will most certainly use the book mostly as a handbook, and I believe that readers coming from inside and outside the industry will be refreshed with new ideas. Readers may, for instance, be inspired to learn more about artificial intelligence and machine learning (thanks to Aki Ranin’s tips) or to better understand the talent development and HR implications of and for fintech.

I applaud the editors of this book for a job well done, and especially all the contributors for bringing together a diverse range of perspectives, ideas, and opinions on the future of the financial services industry for other to explore.

Fintech: The New DNA of Financial Services
By Pranay Gupta & T. Mandy Tham (Eds.)
514 pages. 2019. Walter de Gruyter. €42,99 (softcover), €42,99 (e-book)

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