Technology is altering every aspect of our lives. Social media, streaming media and cell phones are only a few examples. The financial industry is experiencing a revolution of its own. Cryptocurrencies and alternate payment methods are just some of the innovations that are threatening to disrupt the industry, though their impact still has to be determined. Here are six ways technology has changed the finance and banking industry already.
#1 Fintech Opens Up the Financial Industry to Everyone
Traditionally, the financial industry was limited to big institutions and major investors. Technology now allows small startups to enter the field. It also allows small businesses, nonprofits and individuals to tap into crowdfunding to raise money for their projects. This lets the average person become an early investor and share some of the profits.
A number of platforms and services match investors with those needing capital, including those who can’t get loans from traditional banks or want to pay a lower interest rate than what the big banks would charge. In other cases, technology makes it easier for people to access things like SSI payday loans from wherever they are. Online services connect people with lenders and allow them to find those with the best terms or lowest interest rates.
There was a time not too long ago when people who needed these kinds of loans had to go from lender to lender in order to apply, and the process was extremely strenuous. But today, various online services allow people to both search and apply for SSI loans from the comfort of their homes. This is a major improvement for those who otherwise would’ve been seriously limited.
#2 The Practical Applications of Data Science in Finance
Ecommerce has relied on data science for years to determine the best advertising to present to a particular customer and increase the odds they’ll buy something. Data science is giving businesses the ability to offer personalized services to customers. It leads them to offer people products they are starting to be interested in at the time they’re most likely to choose them.
The next level of Big Data is artificial intelligence. AI allows bots to offer personalized financial advice to clients who couldn’t afford a human financial planner. This also allows financial institutions of all sizes to remain engaged while letting them make their own decisions. Chatbots are also starting to replace humans in customer service.
Another application of AI in the financial services industry is in the investigation and identification of fraud. AI hasn’t replaced the need for people, however. Instead, it flags suspicious activity that human investigators then look into while providing them with detailed data on the customer’s activity.
#3 The Impact of the Internet of Things on the Financial Sector
The Internet of Things relies on a network of billions of interconnected devices all relaying data from their location to their operating conditions to various centralized processors.
The Internet of Things impacts financial services in a number of ways. One has been the rise of pay as you go insurance, where you pay auto insurance based on your driving habits which are tracked by a device in the car itself. We can expect the IoT to have a significant impact in the years to come and data gathered from connected devices will change how institutions deal with customers and vice versa.
#4 The Streamlining and Simplification of Financial Services
Public cloud services are dramatically streamlining banking operations as people can make payments, view statements and get approved for a loan via automated interfaces. This eliminates a lot of manual work for both the institution and the customer. At the same time, user interfaces are being simplified and streamlined, so you can transfer funds, pay for goods or apply for a loan with just a few button clicks. However, it also increases the risk to the customer’s data, creating incredibly high demand for cyber-security experts.
Cryptocurrencies are attempting to turn the financial system upside down and are really a force to be reckoned with. But the technology that’s behind it, the blockchain, is set to have the biggest impact on the industry as a whole.
The blockchain, a system of distributed ledgers that can be either completely decentralized or maintained privately, allows for much safer transactions and bookkeeping since every transaction is strung together in a series of blocks from the very beginning and is broadcasted to every single computer in the network, making it almost impossible to falsify.
Cryptocurrencies like XRP and the adjacent Ripple network are already revolutionizing international money transfers and could one day be used as a prototype for a post SWIFT system. Bank to bank transfers using SWIFT can take days, while cryptocurrencies like XRP can be transferred and verified within seconds and its network can process an incredibly large number of transactions per minute.
Bitcoin is also rocking the financial system to its core by allowing users to exchange it without the need for a third party. Does it mean the end of banks? Probably not, but they’ll surely lose some of their dominance. The same can be said of old legacy remittance services if they don’t take the steps needed to adapt to this new reality.
#6 More Consumer Participation in Investing
Technology has also completely transformed the way people trade these days. Millions of dollars in assets can be bought and sold using nothing but a mobile. Brokers are slowly becoming obsolete as new investors have much more access to information that they could access not too long ago. We now have things like social and copy trading where investors can literally copy others’ trades and leave their trading accounts in auto pilot. We’re now in the age of digital robo advisors and we could soon see a day when virtually all trading is done through AI.
We’ve outlined a number of ongoing revolutions in the financial services industry, but it is certain that more will come. This is why FinTech is one of the hottest sectors in the market, forcing traditional banks and financial institutions to reinvent themselves or else go out of business.