How is Technology transforming Finance?
“We’re witnessing the creative destruction of financial services, rearranging itself around the consumer. Who does this in the most relevant, exciting way using data and digital, wins!” — Arvind Sankaran
The once exclusive club of financial firms backed heavily on paper money, human interaction and bulky records storage has now moved on to conducting their entire business on digital interfaces. This steady seepage of technology into financial sector has massively disrupted their operations and will continue to do so. The fintech revolution has been fueled majorly by the availability and handling of big data, cloud-based computing and automation powered by AI and ML algorithms.
Automation is the key feature technology has to offer to any sector it steps in. Manual processes that are resource and time intensive even for established professionals can be easily automated and integrated into the system. Technology assisted finance has enabled mundane and tedious processes of financial services industry to be overtaken by automated programs, thus ensuring smoother workflow, increased efficiency with precise accuracy and reduced costs.
The new disruptive entrants brought by FinTech innovators are crowdfunding, mobile payments, peer-to-peer lending, cryptocurrency, customer intelligence and robo-advisers. They have deployed highly focused products and services, thus allowing them to aggressively target these segments which are often prone to customer frustration and high profit margins for traditional banking system.
The decentralized asset ownership model heralded by transportation services (Uber, Ola) and lodging (Airbnb) is being embraced by the financial sector. It cuts down on infrastructure and capital costs while focusing on providing virtual platforms to consumers and product/services providers to find an efficient match with convenient hassle-free customer experience. Similarly, crowdfunding platforms connect individuals having small investment capabilities with a plethora of potential investment targets in need of funding.
Financial institutions have relied heavily on customer data for decision making. Technology advancement has allowed businesses to access exponentially more data about users’ preferences and needs. In-depth analysis of people’s behavior and patterns can be figured out with the help of large amounts of streaming real-time data extracted from their online or digital activities. These data-points can be incorporated in certain algorithms to calculate the creditworthiness of a borrower. Moreover, analytics tools aid in visualizing information and drawing out valuable insights to model better personalized products to target specific customer segments.
Strategic alliance and collaboration between tech giants and established financial firms have started to come into existence. It presents a perfect symbiotic relationship as the technical industry brings its tech architecture, enablement and skills to the table whereas the financial firms provide the consumer-end product, risk management and regulatory expertise. Applications of technology in financial sector works as fitting two pieces of puzzle together. It perfectly matches the demand-supply of every market participant, no matter how inconspicuous, desolate or remote what they are looking for may be.
With the entry of Apple in payments sector through ApplePay, its recently launched credit card in August, Facebook’s Libra cryptocurrency and Google moving into banking and financial services, it would not come as a surprise to see more mergers or acquisitions of the like in the future.
The unfortunate breakout of Covid-19 has clearly affirmed the necessity of change and adaptation. Companies that already integrated automation and existing technologies into their business models stand on more solid ground now than others, and some making unprecedented gains during this pandemic solely due to their digital transformation.
