The same procedure as all the time? The potential of digital financial business models to change our decisions for better

Whereas FinTechs and digital financial applications are labeled “disruptive forces” and “game changers” shaking up the existing world of finance and beyond within industry and even politics, academics tend to hold the view that by a bare change of the platform or transaction setting of our financial decisions, existing theoretical frameworks are not challenged too intensively.

However, not only does digitalization allow for more collaboration – between humans, distributed humans as well as between humans and technological entities – but also for different ways of collaboration. Imagine you consider buying Apple stocks in four different situations:

i) Analyzing your finances, you consider you are liquid enough now to invest and Apple seems a solid start for that. You open your online depot and fulfil the transaction.

ii) When opening your interactive depot, you just saw your boss sold his 120 Apple stocks just a minute ago. You still continue your transaction?

iii) When opening your online depot which you share with your baseball mates, you need to get the majority of them on board before the buying trade is possible. Do you consider researching a bit more? Are your mates going to agree to this transaction?

iv) While surfing on your phone, a push-up from your online trader pops up – their chatbot informs you it is a good time to buy Apple stocks now. Do you follow this advice on the go?

Considering these, a mere selection of possible scenarios of a trading situation, it becomes obvious that human financial decisions are shaped through contact, if online or offline, direct or indirect, if in the form of advice, communication or the pure existence of a social group within which an individual makes a decision. Keeping in mind the vast financial and strategic decision-making literature on nudges with the numerous examples of how framing a decision context changes our decisions, FinTech applications with their diverse setups, designs and defaults are definitely worth having a second glance from an academic perspective. FinTech applications give a new angle to financial decision-making transforming the way of collaboration. Does online and task-related communication such as in a collaborative investment app free individuals from halo effects? Does advice from AI remove or strengthen critical thinking? It remains the joint task of practitioners and academics to understand and design these applications as frames for inclusive, unbiased decisions so that research can serve its purpose – society.

by Barbara Voelkl, FINDER ESR

Fintech: Defining a Constantly Evolving Term

This short series of editorials is a compilation of a few of the FINDERs’ observations on the definition of the term “fintech.” One that has not yet been standardized in any practical way, the definition seems to differ depending on the context and actors at play. That said, the following entries reflect the FINDERs’ initial considerations of the term and shall be revisited nearer to the end of the four-year research project.

What is a FinTech?

A FinTech is an organization using 21st-century technology and software to provide, ease and automate financial and insurance services of any kind as captured in the NAICS Codes 52. The definition is not restricted to start-ups. These serve however as clear examples of FinTechs as – in contrast to incumbent banks – they mostly focus on one concrete aspect of the financial service world. A FinTech always contains a technological component, a mere business model change does not suffice. An interesting point: currently there are no specific SIC/NAICS Codes for FinTechs, which highlights their bridging position between technological and financial organizations.

A Fintech Definition

Here is a definition from a 2016 article that did extensive research on the Fintech term. My self-made definition is:

The term Fintech is often used as short-term for financial technology or financial services and technology. The term defines a company or a solution that uses technology to provide financial services. Depending on the context, a company’s size (rather a start-up or scale-up than an established company), a company’s portfolio (rather entirely focused on technology for financial services) and the innovative and industry-disrupting potential (rather high) are often consulted to define Fintechs in a narrower sense.  

Defining Fintech: Have Patience

It’s a fairly predictable pattern: [concept] arrives in a place of scrutiny, nobody knows what its boundaries are, [person/group/discipline 1] makes a solid attempt, [person/group/discipline 2] makes a convincing counterargument, the cycle continues ad nauseam and/or until everybody seems to just adopt the definition that works best for them in the current context. It happened with the idea of a European continent (which you might think is separate from Asia), it happens chronically with art (caution: that is a playful Buzzfeed link; a more serious line of discourse can be begun here), and as a matter of fact, it’s even happening to you. Yes, you

In a way, it’s a very useful process that tests our societies’ epistemological health. There is very probably a name for this process – a name currently owned by [person/group/discipline 3] (until [person/group/discipline 4] convinces us of a better one). The process, in any case, should not be leapfrogged with the belief that a bunch of useless quibbling will be bypassed. Indeed, good things come from these discussions, though it is quite a nuisance for those who want to have immediate plug-and-play conversations about the topic where everybody knows without question what they mean. That being said, I argue that, despite the instinctive tendency to rush for a universal definition, this is not the most efficient use of brain-power when it comes to new, shiny concepts – concepts such as “fintechs.”

A portmanteau of “financial technologies,” it might at first glance seem like a very simple concept to grasp. “Technologies that let me pay for things,” you might posit. Yes, but rarely does a technology alone handle your payments cradle-to-grave. This process is often broken up into different pieces. Therefore, is the company that produces the RFID reader in a contactless terminal a fintech? Maybe; maybe not. This example is one drop in an ocean, but it makes immediately apparent how murky these waters can get. However, the term is ripe for discussion in many circles and some sort of shape must take form in defining what, exactly, a fintech is. 

Bounded rationality dictates that we draw the line in a place that makes sense for the current discussion. And yet, powerful players in different domains have rushed to establish what seems like universality in their suggestions. In no unclear terms, the dedicated FinTech Weekly says that companies which engage with finance-related software qualify as fintechs – apparently the hardware side is not part of the club; Merriam-Webster obfuscates this delineation but distinctly points the moniker at products and companies – conspicuously excluding services (such as peer-to-peer financial transacting); Bloomberg opens its gates to “financial-services companies using the Internet, mobile phones, and the cloud”, diving deeper into Merriam-Webster’s pigeonhole and summarily ignoring that the analog history of fintechs that predates the digital age by far (what, after all, was a ledger if not a financial technology?); PwC attempts to take the holistic, conceptual approach, to no apparent pragmatic utility. 

While these agents and many, many more very boldly stick their flags in whatever patch of definition-assigning land they can, we’ve been luckily spared from any one of them sayingmy definition is the most valid” – yet. It’s very likely that each organization that stakes a claim in defining this term has its reasons for doing so exactly where it chooses – I would argue that it’s what makes the most sense for the conversation at hand. Many will likely try – hard – to muscle their definition ahead of others, and let them waste their energy but pay it no serious mind. “Fintech” as a term will constantly shift in meaning. Why? Because it has the convenient quality of being steeped in the realm of digital technology, and the beautiful thing about digital technology, and specifically the way it innovates, is that just when you think you’ve found its limits and how to handle it, you haven’t