Late last year I described how the US was losing the technology arms race, particularly as it applies to artificial intelligence (AI) and China. The US is competing in the FINTECH arms race and is struggling here as well.
FINTECH methods, tools and techniques include cryptocurrency, blockchain, insurtech, smart contracts, Regtech, robo-advisors, cybersecurity, open banking and underbanked services. But three of these are foundational to FINTECH adoption: artificial intelligence (AI), blockchain and cryptocurrency. Let’s look at these three and how well (or badly) countries are faring in the FINTECH arms race as measured by their investments in, and adoption of, these three FINTECH technology baskets, as well as their investments in the readiness of their national digital infrastructures.
AI & FINTECH
Cryptocurrency, blockchain, insurtech, smart contracts, Regtech, robo-advisors, cybersecurity, open banking and underbanked services all require digital intelligence to operate. Some – like smart contracts, robo-advisors, Regtech and insurtech – require massive amounts of digital intelligence, while some others require a little less, though in time all of the FINTECH technologies and applications will rely heavily upon AI.
While there are other FINTECH drivers, AI powers, amplifies and therefore supersedes them all. AI is foundational to FINTECH. AI is foundational because it’s more than one technology. In fact, it’s a family of technologies that includes machine learning, deep learning, image recognition, robotic process automation, natural language processing, text mining, vision systems, speech systems, neural networks and pattern recognition, among other methods, tools and techniques that enable and amplify FINTECH technologies and applications. All of the major technology companies are heavily invested in the technology, but the most important investment portfolios belong to countries which have declared AI as a strategic national objective. China, for example, defines AI as one of its core industries.
- South Korea
- Saudi Arabia
- South Africa
This index is important because it describes each country’s ability to succeed with AI and automation.
- China (48%)
- USA (38%)
- Other (13%)
PWC identifies the countries and regions most likely to benefit from AI as measured by the potential positive impact AI will have on GDP:
- 26.1% – China
- 14.5% – North America
- 11.5% – Southern Europe
- 10.4% – Developed Asia
- 9.9% – Northern Europe
- 5.6% – Africa, Oceania, & other Asian markets
- 5.4% – Latin America
Blockchain & FINTECH
Blockchain is another foundational FINTECH technology that solves many of the most vexing technological, professional and personal financial transaction problems we face, especially security. In fact, blockchain will rewire whole industries, especially the financial services industry. Blockchains are transparent ledgers that validate and verify transactions (which only sometimes involve cryptocurrency); the application range of blockchain technology is much broader than initially suspected. All this interest is the result of conceptual and actual applications, and the possibilities around transaction seamlessness. In addition to the growing number of blockchain application domains, we can expect AI and machine learning to fuel blockchain’s basic architecture. Intelligent transaction validation is also well underway.
When we look at the adoption of blockchain and perhaps surprisingly more and more local, regional and national governments are adopting blockchain or approving blockchain investments. For example, blockchain is being widely adopted in China and Asia across multiple vertical industries, such as insurance and agriculture. Australia’s “CSIRO’s Data61 has formed a consortium with law firm Herbert Smith Freehills and IBM to build Australia’s first cross-industry, large-scale, digital platform to enable Australian businesses to collaborate using blockchain-based smart legal contracts.” The European Union (EU) has made blockchain “a priority for trade and business.” Other countries are making similar commitments to block-chain, including Dubai, Estonia, Gibraltar and the US, among other government offices and agencies. Latin America is also aggressively pursuing blockchain as demonstrated in Mexico, Argentina, Brazil, Chile and Columbia, among other countries.
Cryptocurrency & FINTECH
Cryptocurrency adoption rates are much, much trickier to discern because countries have (1) slowly accepted cryptocurrencies like Bitcoin, have (2) flat out rejected Bitcoin or (3) have just explored the use of government-backed cryptocurrencies. Some countries are “open” to the use of Bitcoin and other cryptocurrencies though nowhere is it a substitute for, or tied to, a country’s legal tender – yet. The US is “open” to the possibilities of cryptocurrency, as is Canada, Australia, the European Union (EU), Finland, Belgium, Switzerland, Malta, Cyprus, Bulgaria, the UK and Germany. Some countries like China, Russia, Vietnam, Bolivia, Ecuador and Columbia have essentially banned Bitcoin and cryptocurrency, though several of these countries have a lot of blockchain and cryptocurrency start-up activity within their borders. Rankings of “bitcoin friendly” countries have begun to emerge:
- South Korea
The major questions around Bitcoin and cryptocurrency are about future adoption based on what countries decide over time. The position here is that cryptocurrency will be impossible to stop in any conventional way which leaves governments no option but to accept its use through a set of initially soft regulations that permit its specialized use. Will cryptocurrency replace “legal tender” Unlikely for a variety deeply-rooted vested financial interests. Will there be alternative national digital currencies? Yes, eventually.
Digital Infrastructure Readiness & FINTECH
In addition to investments in AI, investments in blockchain, and the acceptance of cryptocurrency, a country’s ability to participate in the FINTECH arms race depends upon the readiness of its digital infrastructure.
Digital readiness provides an assessment of the condition of a country’s overall digital infrastructure and its ability to adopt FINTECH. Countries that have well-developed digital infrastructures – such as Sweden and Norway – are able to leverage FINTECH so long, of course, they are inclined to do so. In order for countries to leverage FINTECH they must possess basic and always-improving digital infrastructure capabilities (broadband, cloud, big data, cybersecurity, etc.) because FINTECH requires a modern digital infrastructure.
Several organizations and companies collect data about digital infrastructure readiness. The World Economic Forum, for example, developed the Network Readiness Index – the NRI – which assesses “countries’ ability to capitalize on the digital revolution and their preparedness to benefit from the emerging Fourth Industrial Revolution … the Index aggregates data from 53 indicators … networked readiness rests on whether a country possesses the drivers necessary for digital technologies to unleash their potential.” Another source is the Digital Evolution Index (DEI) developed at the Fletcher School at Tufts University (with help from Mastercard and DataCash). Yet another is CISCO’s digital readiness scoring methodology which identifies three stages of digital readiness.
The World Economic Forum, the Fletcher School at Tufts University and CISCO all collect and interpret data that score and rank a country’s ability to compete in an increasingly digital world. The scores reflect a direct measure – digital infrastructure readiness – of a country’s ability to participate in the FINTECH arms race.
FINTECH Adoption Rates
Overall FINTECH adoption rates, which includes AI, blockchain and cryptocurrency adoption, suggest that the FINTECH arms race is well underway with some clear leaders and laggards. EY reports that China is way ahead while some surprising countries – like Japan and Canada – are lagging. EY provides the following rankings:
- South Africa
- Hong Kong
- South Korea
- Belgium & Luxembourg
The FINTECH arms race is well underway. While there are many FINTECH methods, tools and techniques, three baskets – AI, blockchain and cryptocurrency – are perhaps the most important indicators of commitment to FINTECH adoption and ultimately readiness. In order for countries to compete, they must invest in these three baskets as well as their digital infrastructures. They should also show a commitment to FINTECH adoption. If they fail to invest and adopt they cannot compete in the global FINTECH arms race, and if they fail to compete in the FINTECH arms race, they will suffer economically, politically and even militarily. Countries that invest heavily in their digital infrastructures, AI, blockchain and cryptocurrency – and adopt FINTECH – will successfully participate in the FINTECH arms race. Those that fail to invest in these and related FINTECH areas will find themselves falling in the FINTECH adoption rankings and therefore lagging in the FINTECH arms race. Some of the early rankings discussed in this post should serve as a wakeup call to countries that for whatever reasons are losing the race. What’s clear is that winning the race requires a long-term, well-funded national program in FINTECH with the full and aggressive participation of the technology countries that live within the countries that want to win the FINTECH and larger technology race.