How do you know when an industry has gone from disruptor to establishment? When people start to talk about how it is going to be disrupted. That’s the situation Fintech, that fusion of financial services and technology that has helped propelled all aspects of finance into the digital era, currently finds itself in.

The pure Fintech players, such as Starling, Square, PayPal, are no longer scrappy upstarts taking on legacy operations – they are very much the establishment now.

Don’t believe that Fintech is the establishment? Then consider that the sector is so attractive and accepted that the likes of Google and Apple are now major Fintechs in their own right. Or that it has been around long enough that the earlier Fintech startups are running on what has become legacy systems, with all the issues that brings.

Then there’s the fact that Fintech is very much part of Web2, the internet era dominated by companies such as Amazon and Facebook, as well as those mentioned above, and characterized by the proliferation of centralized services. It’s also an era that is coming to an end, to be replaced by Web3, in which the functionality of now is combined with a more decentralized approach.

The disrupting of the disruptors

But what will disrupt Fintech, a sector barely two decades old? For me, it will be decentralised finance (DeFi), led by blockchain and non-fungible tokens (NFT).

What do I mean by DeFi?

It's a term that covers decentralized apps (or dApps) that specifically focus on finance, whether that’s exchange, lending or saving. There’s a good definition from Andreessen Horowitz’s crypto glossary, that says “combine traditional finance with the power of software to enable vastly more programmable and powerful financial applications”. DeFi removes the middleman or intermediary in financial processes, thus makes it more transparent and cheaper for the end user.

For many, removing that middleman has significant appeal. Why? Because despite the advances that Fintech has made to upend financial services, there are still significant aspects of FS that are more analogue than digital. In some instances, technology has provided a new user interface, yet the back-end processes are still rooted in legacy systems and, more importantly, ways of thinking.

So, while it is now easier to open an account online, more complex transactions take longer, require paperwork and even face-to-face appointments, at a time when even the biggest banks are shutting branches.

The true end of analogue processes

This is to be expected with current processes that require analogue or legacy methods of ID verification. This is where the interoperability of the likes of blockchain come in; providing unimpeachable data to prove identity/provenance, and in doing so both removing the need for slow processes and accelerating the rate of transactions.

Interoperability is where identifies are portable across ecosystems. For instance, in gaming, progress and identifies can move across different gaming dApps. In finance, that would be a single, immutable identity used for everything, with less requirement to prove a customer is who they say they are as their interoperable identity is trusted by all providers. Lending, payments, proof of identity, trading; all will become decentralised, and much faster.

Then there’s NFTs. Transforming ownership of assets with irrefutable proof, as well as ushering in a new asset class – that of digital. For example, we could well see the rise of tokenised invoices. Invoice beneficiaries could sell parts or whole of the invoice on an NFT marketplace within seconds. The money will be secured immediately, with the fee for invoice financing a fraction of what it is currently.

Even the ownership of physical assets will change. For example, in shipping, the Bill of Lading is proof of ownership. With blockchain-based BoLs, ownership of shipments could change hands rapidly, even as goods are in transit. Retailers could react to changing market conditions by buying or selling stock before it has even reached their warehouses, backed by fast access to financing.

The instant, automated nature of this new world of DeFi also removes the restrictions currently imposed by time zones and geography. Smart contracts, based on blockchain technology, can automatically trigger payments and charges when data tells them conditions have, or have not, been met. No more waiting for one part of the world to wake up for business; it just happens automatically.

Plus, the very nature of DeFi makes it much more secure. It’s an area of significant innovation – we’re already seeing offerings that allow investors to trade without moving assets to exchanges, eliminating the risk of being hacked, frozen, or misappropriation.

The broader rise of decentralised thinking.

In some ways, the growing interest in DeFi is part of a wider trend that is questioning why so many industries are heavily influenced, if not outright controlled, by a central establishment. For instance, the likes of Microsoft and Meta are helping to bring the concept of the metaverse into the public conscience, but this blurring of the physical and digital is not and cannot be restricted to what a handful of conglomerates dictate.

Some way from mainstream disruption

The applications of the technologies that make up DeFi are limitless. Properly deployed, they can take the pain out of finance that Fintech has been unable to solve and make all types of financial services easy to use for consumers, businesses, and investors. Yet they are some ways from becoming mainstream, so perhaps Fintech can breathe easy for now; the original disruptors perhaps have a couple of years before they are themselves upended.

Of course, forward-thinking Fintech may well have by then helped bring DeFi into the mainstream anyway. A case of the disruptors disrupting themselves.