The first financial technology, you could say, was money itself: Suddenly, you didn't have to carry bags of wheat around, or drag cattle through the streets, to stake a claim to their value. Since then the history of finance has been the story of increasing abstraction, a series of seemingly dangerous new developments that grease the wheels for commerce to flourish and wealth to grow: the leap of faith called fiat currency, the personal check, the stock share, the credit card, the derivative.
But for hundreds of years, banking itself has been a stable operation—in fact, nearly a synonym for stability.
Today a new wind is stirring in finance. Loosely called "fintech," it describes a host of new companies swarming into the space once comfortably dominated by traditional banks and central institutions, offering consumers new and faster ways to get loans and move their money around. Some of the new applications of technology are invisible to consumers and almost bizarre, like the cryptographic "blockchain" bookkeeping behind Bitcoin, or the high-frequency trading shops that are turning equities markets into humming black boxes nearly impossible for regulators to track.
Some of the new ideas are far more accessible, and in a way more disruptive: If you've seen ads for the super-fast online lenders that promise quick mortgages through your iPhone, what you're really looking at is an entire new industry scrambling to split up the functions of banks and capture the profits.
What's Washington's role in this transformation? The finance industry hasn't exactly distinguished itself in the past decade; since its loose mortgage lending and opaque new securities fueled the crisis of 2007-08, regulators have been watching carefully. Now comes a new, faster, younger version of banking that doesn't necessarily put consumers' deposits at risk—but opens the door to new issues, falling outside lending-fairness rules and lacking some of the protections that surround banks. It also worries banks themselves, which fear the new players will peel off their most lucrative lines of business and turn them into highly regulated, low-margin utilities.
In this special issue of The Agenda, POLITICO looks at the collision of the new tech-driven finance startups with Washington's overseers. Agenda assistant editor Danny Vinik asks whether online lending will be able to evade the fairness requirements that have grown around the lending industry in the past 40 years and looks at new ideas for how to keep it fair while still letting it grow. Financial technology reporter Colin Wilhelm went searching for the first major lobbying battleground between fintechs and banks and found it in an obscure Washington office that has been issuing bank charters since the Civil War. Patrick Temple-West asks whether "robo-advisers" are about to blow up the staid industry of investment advice, and Zachary Warmbrodt looks at the unpleasant surprises that high-frequency traders are causing for regulators trying to understand our most important financial markets. Plus, we offer you five signs that you (yes you, reader) may be disrupting the banking industry already with that clever device in your pocket. And don't miss our survey of players in the fintech world, who take on the tricky question of how this all should come together.
Who will handle your money in 20 years, and what will your money even look like? The answer has never been less clear, but the decisions being made now will help shape the answer. Welcome to the Future of Money.
Editor, The Agenda