25 Groundbreaking Financial Advances From the Past 25 Years

Fact checked by Suzanne KvilhaugReviewed by David KindnessFact checked by Suzanne KvilhaugReviewed by David Kindness

The past 25 years have been among the most pivotal in history for financial innovations. The mainstream introduction and rise of fintech have changed nearly every area of personal finances, from banking to investing and beyond. Whether or not you’re an early adopter of technology, financial innovation has touched your life in some way.

To shine a greater light on some of these advancements, we’ve rounded up a list of the 25 most important financial innovations of the past 25 years.

Key Takeaways

• Smartphones and digital payments have transformed transaction convenience and accessibility.
• Bitcoin and blockchain have introduced new digital currencies and decentralized systems.
• Zero-commission trades, fractional shares, and robo-advisors have broadened investing opportunities.
• New banking regulations and fintech innovations like BNPL and neobanks have reshaped financial services and consumer protection.
• AI has touched nearly every aspect of personal finances, including automation in budgeting and investing, as well as helping us make financial decisions.

Banking Regulations

Banking regulation may not seem as exciting as some of the financial technology (fintech) advancements we’ve seen over the past couple of decades, but it’s just as important. At their core, these regulations are designed to protect consumers and often come about as a result of economic events.

One of the most important historical banking regulations was the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed in 2010 in the wake of the housing crash and the Great Recession. This act had many important provisions, including ending bail-outs to financial firms, preventing banks from involvement with hedge funds and private equity funds, creating a council to watch for systemic risks in the financial industry, and requiring more transparency and accountability for credit rating agencies.

Additionally, Dodd-Frank required the creation of the Consumer Financial Protection Bureau (CFPB), which enforces consumer protection laws and ensures the fair treatment of consumers by financial companies.

At the same time Congress passed Dodd-Frank, the international community developed Basel III, a framework designed to address vulnerabilities in the banking sector and limit risks within the financial sector from having a large-scale economic impact, as happened in 2008.

Democratized Investing

Historically, many people have been unable to participate in the stock market because of the often high upfront costs. Two financial innovations have democratized investing and made it more accessible to the average investor.

First, zero-commission trading became an industry-standard in October 2019, when Charles Schwab announced it would stop charging commissions on stock and ETF trading. Other investing platforms quickly followed their lead, making it easy for investors to buy and sell stocks and ETFs without paying costly trading fees.

The other innovation that made investing more accessible by reducing upfront costs is fractional shares, which Interactive Brokers introduced in late 2019. By purchasing fractional shares, investors can purchase less than a full share of a stock. For example, rather than buying a $100 share of stock, you can purchase a quarter-share for $25.

Digital Payment Technologies

Digital payments are a part of life today, making it easier to make contactless payments and send money to friends and family. You might be surprised just how early they got their start. In fact, the first contactless payment dates back to 1995 when the Seoul Bus Transport Association in South Korea introduced its contactless payment card, the UPass.

The two primary digital payment technologies are near-field communication (NFC) and EMV chip technology. NFC allows for “tap to pay” features thanks to RFID technology, while chip technology allows you to insert your card instead of swiping it. The most common NFC payment methods include Apple Pay, Android Pay, and Samsung Pay. 

Google announced its first payment app, Google Wallet, in 2011, while Apple’s first version of mobile payments, Passbook, was introduced in 2012.Meanwhile, contactless payments using EMV chips on credit cards have been available in the United States since 2014, but it wasn’t until 2019 that they were widely used.

Other digital payment innovations include the invention of third-party payment apps. For example, popular digital payment apps date back to 2009 when Venmo was created, followed by Cash App and Zelle. Meanwhile, global transfer apps like Wise and Revolut date back to 2011, when Wise (originally called TransferWise) was founded.

Crowdfunding and ICOs

While the general concept of crowdfunding—raising money by accepting relatively small contributions from many people—isn’t necessarily new, it’s taken on a new form in the past couple of decades thanks to technology. 

The first crowdfunding site in the United States, ArtistShare, allowed artists to connect with and raise money from fans. Fast forward to 2010, and the launch of GoFundMe made it easy for the average person to raise money from friends, family, and even strangers. Finally, the Jumpstart Our Business Startups (JOBS) Act of 2012 legalized the use of equity crowdfunding by startups, which led to a rise in the popularity of this fundraising method.

A more niche form of crowdfunding known as an initial coin offering (ICO) arrived on the scene in 2013. ICOs are a way for blockchain and cryptocurrency projects to raise money. 

Note

The most prevalent early example of a successful ICO was Ethereum’s ICO, which raised over $15.5 million in 2014.

Cryptocurrencies

It would be impossible to discuss financial innovation without discussing cryptocurrency, a decentralized digital currency built using blockchain technology. Cryptocurrency has a different function depending on who you ask. Some see cryptocurrency as a feasible replacement for fiat currency, such as the U.S. dollar, while many view it as an investment opportunity.

The early technology behind blockchain technically dates back to 1991, but it wasn’t until 2009 that Satoshi Nakamoto implemented the first blockchain and created Bitcoin. Since then, cryptocurrencies have become increasingly popular as the blockchains that power them have become more powerful. For example, Ethereum was introduced in 2014 and laid the groundwork for smart contracts to power everything from insurance to lending and more.

ETF

Exchange-traded funds (ETFs) have been around since the 1990s, but they’ve become increasingly popular in recent years. People often like ETFs because of the ease of trading and the reduced costs and tax liability compared to mutual funds. Many investors now opt for ETFs in their taxable brokerage and individual retirement accounts, but they are not yet standard in workplace 401(k) plans.

Another advancement in ETFs came just this year. In January 2024, the Securities and Exchange Commission (SEC) approved the first spot bitcoin exchange-traded products, which combine the benefits of ETFs with those of cryptocurrency without requiring that investors actually purchase cryptocurrency directly.

Fintech Innovations

The past 25 years have brought no shortage of fintech advancements. Two of the most popular that you or someone you know might use in your day-to-day life are buy now, pay later (BNPL) apps and neobanks.

First, BNPL apps allow consumers to spread out their purchases over several payments, usually within a couple of months or less. These apps are so popular that you probably frequently encounter them when you’re checking out your online purchases. The first major U.S. BNPL app, Affirm, was launched in 2012. And in the following years, international BNPL apps Afterpay and Klarna made their way to the United States.

The first neobanks arrived on the scene around the same time. Chime was founded in 2012, while the popular neobank Varo was introduced in 2015. Neobanks are digital companies that offer banking services. Some neobanks, including Varo, are chartered banks. Others, including Chime, partner with other chartered banks. In both cases, neobanks offer various banking services, including checking and savings accounts, debit cards, and more.

Generative AI and LLMs

AI—short for artificial intelligence—is one of the most prevalent financial innovations. It allows computers to mimic human intelligence and complete problem-solving tasks. 

AI has been used in some forms for far longer than you might think. Its early forms appeared on the scene as early as the 1950s. That being said, AI today looks very different and has far more uses. Notably, generative AI can create new content and ideas.

Another newer addition to the AI scene is large language models (LLMs), which are a type of AI that are trained using large amounts of data, allowing them to understand and generate information. They’re a huge building block of generative AI. LLMs and generative AI have plenty of practical applications, from ChatGPT (which launched in 2022) to helping you with your budget or investment portfolio.

AI may have other impacts on your financial situation. AI may replace some jobs while reducing employment in others. On the upside, it could also help bridge labor shortages and give investors new options to consider. 

Note

AI investors may buy stocks in companies that build chips like NVIDIA (NVDA) and Advanced Micro Devices (AMD) or those that build AI models or provide AI services. As with any investment, it’s wise to consider your risk tolerance, time horizon, and financial goals.

High-Frequency Trading

Another innovation from the past 25 years is high-frequency trading (HTF), which was authorized by the SEC in the late 1990s through its Regulation Alternative Trading Systems. HFT is a type of algorithmic trading that allows someone to make automated trades much faster than they could themselves. The goal of HFT is often to make a very small transaction on each trade but to make thousands, or even millions, of trades per day.

HFT still isn’t the favored investing strategy for most people—nor should it be. In fact, the SEC has cracked down on it in recent years because of its impact on the market. However, it’s a notable financial innovation that isn’t likely to go anywhere.

Free Online Tax Filing

You’ve likely enjoyed financial innovation if you’ve ever filed your taxes for free online. The IRS first introduced electronic tax filing (e-file) in 1986 to just a handful of tax preparers. By 1990, the program had expanded nationwide, with millions of people using it. Finally, in 2003, the IRS launched Free File, allowing consumers to file their taxes online for free through various tax software companies. 

IRS Free File has made tax filing far simpler and more affordable, allowing anyone to file online while reducing the cost of hiring an accountant or using paid tax software.

Robo-Advisors

One of the most important financial innovations of the investing world in the past 25 years is the robo-advisor, which builds automated investment portfolios based on someone’s financial goals, situation, and risk tolerance. They essentially do the job of a financial advisor but at a far lower price point. This technology has changed the game for investors who don’t feel comfortable managing their own portfolios but who also don’t want to foot the high cost of hiring a financial advisor.

Two of the largest robo advisors, Betterment and Wealthfront, were both founded in 2008. However, many large brokerage firms like Fidelity, Vanguard, and Charles Schwab now offer their own versions of robo-advisors. One 2023 study found that only 8% of people have used or currently use a robo advisor, but far more are interested in using one in the future.

Smartphones and Apps

If there’s one innovation that touches nearly everything else on this list, it’s the smartphone. The first smartphone, the iPhone, was introduced in 2007, which combined a mobile phone, music player, and computer into just one device. It’s come a long way in the nearly two decades since then.

Many of us run nearly our entire lives from our phones—or, at the very least, our entire finances. You can use a smartphone app for almost anything related to your finances, including banking, budgeting, getting a mortgage or loan, applying for a credit card, checking your credit score, investing, and much more.

Frequently Asked Questions (FAQs)

How Have Smartphones Changed the Way We Handle Technology?

Smartphones have changed nearly everything about how we run our lives, from how we communicate to our health to our personal finances. For many people, smartphones have allowed them to be more in touch with their finances, giving them increased access to their financial accounts, credit scores, and information they need to improve their finances.

What Are the Potential Risks and Benefits of Using Digital Payment Apps and Digital Wallets?

There’s no doubt that digital payments have some key benefits. They make it easier for people to send, receive, and spend their money from anywhere at a moment’s notice. They’re also often more secure than traditional finances. However, they also have some risks, including the risk of fraud and security breaches, as well as the usual pitfalls that come with technical issues, whether they result from user error or technology failure.

Are Robo-Advisors More Popular Than Traditional Advisors?

Though robo-advisors have become increasingly popular, they’re still far less commonly used than traditional advisors. There are some services traditional advisors offer that a robo-advisor simply can’t replace. However, our data shows that far more young people are turning to robo-advisors than traditional financial advisors.

The Bottom Line

Everyone has been impacted by at least one financial innovation on this list. Some people dive in head first to financial innovation, exploring cryptocurrency and AI functions in finance, among other major advancements. Even those who take a back seat when new technology arrives on the scene have been impacted by innovations like banking regulations and smartphones. All of the innovations on our list have potential benefits for consumers. However, changes in technology can also bring with it risk and uncertainty.

Read the original article on Investopedia.