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Writer's pictureDaniel Rudis

Fintech's Rise: How the Great Financial Crisis Paved the Way



Joseph Schumpeter (1883-1950) is known for promoting the theory of creative destruction, which suggests that economic growth and development are primarily propelled by innovation and technological progress. Schumpeter argued that entrepreneurs play a critical role in this process by challenging established structures and creating new ones, leading to an ongoing cycle of destruction and creation. Schumpeter argued that this process is essential for sustained economic growth, and that without it, economies would become stagnant and eventually decline.


Overall, Schumpeter's theory of creative destruction suggests that economic progress and prosperity require constant innovation and change, and that companies that are willing to take risks and challenge the status quo play a critical role in driving this process forward.


Can there be progress without a crisis?


On the one hand, a crisis can create a sense of urgency and necessity for change, which can be a powerful driver of innovation. In a crisis, companies and individuals may be more willing to take risks and try new things in order to survive and thrive in a rapidly changing environment. This can lead to a burst of creativity and innovation as individuals and organizations work to develop new solutions to the challenges they are facing.


On the other hand, a crisis can also be a major distraction and drain on resources, making it harder for companies to invest in innovation and research & development. In a crisis, companies may be more focused on immediate survival and cost-cutting measures, which can make it harder to justify investments in longer-term innovation.


The Great Financial Crisis (GFC) of 2008-2009 served as a significant driver for the growth of the fintech industry. The crisis exposed the demand for financial services and products that were more accessible, secure, and affordable. This created an ideal environment for the emergence of fintechs, neo-banks, and digital decentralized marketplaces to step in and address the gaps left by traditional financial institutions.


These newcomers harnessed technology, such as the cloud and mobile devices, to offer customers more convenient and cost-effective banking services. In addition, the crisis pushed traditional financial institutions to collaborate with fintechs to develop innovative solutions that would better serve their clients.


Although the recent difficulties faced by several major lenders were not as severe as those during the GFC, they highlighted an important lesson about the significance of trust in the finance industry. Among all industries, banking is uniquely vulnerable to a loss of trust. One way to establish trust with customers is by being transparent and maintaining open communication. When it comes to wealth management, clients may have concerns about the specifics of their portfolios, the performance of their investments, and the environmental impact of their holdings. Proactively providing this kind of transparency is a crucial way to build trust and political capital with clients. This becomes especially critical during periods of market stress.

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