Since time immemorial, banks and other financial institutions have been doing things in a certain way, and they have been adamant about letting their practices transform. Whether we talk about banks, insurance companies, or other financial institutions, the business models that they employed have always been static. But thanks to the advent of technology, this is changing rapidly. Thanks to innovators and disrupters in the financial sector like crowdfunding, bitcoin, mobile payments, and state of the art technologies, the financial landscape has seen a massive and rapid transformation that is still going on. In the past, the financial services sector remained unaffected by the technology of that time due to various reasons, and that made it impossible for small businesses or individuals to compete with the giants. However, with fintech on the rise, the future presents a unique opportunity for all.
Here are some of the ways that the financial sector has started reaping the benefits of technology.
Highly Focused Products and Services
In the past, innovation and creativity meant that you could somehow replicate the same business model as the banks. This meant that the essence remained the same, and since all the products and services were more or less the same, they attracted the same highly affluent and tech-savvy crowd. But thanks to the advancement in technology, now some institutions and groups are targeting the crowd that couldn’t get their hands on such financial products or services in the past. They can now get the benefits of the same products and services that the traditional banking system offered, but at a lower price and without spending the time that it took before like short term business finance or remittance. It also boasts about a lower level of frustration for smaller businesses. If we take remittance as an example, we see that traditional institutes and banks used to charge a high fee if you wanted to transfer money from one country to another. It would also take anywhere between three to five working days or even more. Now there are online services that get you the same result, but at a faster rate, a lower fee, and they also offer a more user-friendly interface. This means that you don’t need to be tech-savvy to do business with them. Remittance companies are now handling the business of millions of dollars worldwide and are expanding at an exponential rate.
Automation of Routine Processes
Traditionally, the financial sector has adamantly done all of its activities and processes in the same way for many years, manually. They would have to hire employees for all these procedures and pay them a high amount of salaries as well as benefits. Now, thanks to technology, this area, too, is seeing a rapid and huge change. By automating and commoditizing all their routine procedures and tasks, financial institutes are saving up all their resources and using them to cater to a larger clientele. This automation and commoditization have also lowered the rates at which these activities were being done. By lowering the price, financial institutions have ensured that they now cater to individuals and groups that weren’t able to afford these products and services before.
Now, thanks to technology, businesses and individuals can have access to software and tools that help them with wealth management, asset allocation, tax minimization and calculation, and a plethora of other services that were too costly for them. The best part is that all of these services are being offered online, so there are no geographical restrictions. There are a lot of services that they can access without paying thousands of dollars and from the comfort of their offices or homes. This has given an entry point to a less wealthy and younger class of people who didn’t have these benefits before.
Using Big Data
Data has always been a center point of all financial institutions. Whether we talk about loans, insurance, or any other financial product or service, bankers, and other financial institutions, they will always bank on data like personal credit history, business credit history, and others like driving records and health records to formulate decisions about the individual or group.
Now, thanks to technology, they have an unlimited amount of data that they can go through to make a more informed decision. Nowadays, people are more connected to technology, and thus, new streams of real-time live data are coming in that financial institutions didn’t have access to before. There are tools that the finance sector can use to analyze a person’s social networking history as well as other online sources of data and better calculate the creditworthiness of that individual. This can include checking to see the feedback that people have left about your business on social media channels or checking to see how quickly you respond to customers’ complaints, among others. This type of data can tell you a lot about a company’s practices and whether it is safe to invest in that company or not.
The same is true for the insurance industry. They are using data from wearables and other sources to help them make better decisions. They are also using technology to motivate and inspire their policyholders to make smarter decisions themselves. Insurance companies are providing wearable fitness trackers to their policyholders so they can calculate the number of calories that they have burnt, miles they have walked or run, and other streams of data. They are also providing financial benefits for the individuals who would rather sit on the couch than hit the gym. This monetary benefit motivates the policyholders to take better care of themselves.
One of the ways that many companies like Uber and Airbnb have benefited from technology is by enabling the customers and buyers to connect by using their services. This way, they have been able to earn a large amount of revenue while keeping their costs to a minimum. Uber only has a platform that connects people who want a ride in their city to drivers of Uber. According to this business model, Uber doesn’t have to purchase or maintain expensive assets. They can do it all and more with just a platform.
Just like the companies mentioned above, the financial sector has been fast to adopt this technology. Now, there are lending groups and other financial services that are offering a platform where financial service providers and their clients can connect and benefit from one another. Thanks to this technology, millions of dollars’ worth of loans have been approved in the US alone.
We would also mention crowdfunding sites here as they are providing a similar service to all individuals and groups. They have rapidly become a popular source of seed money for businesses in various industries. People who want to raise capital for their businesses can connect with others who are willing to invest in their business ideas. The best part is that depending on the customers’ knowledge, you can find out if your business idea is worth pursuing or not.
Technology has completely transformed the terrain of the financial sector and is still going strong. This technological disruption has made traditional financial models obsolete and given way to new models that provide better and cheaper benefits to the customers. Does this mean that the brands that we have always known are diminishing? Maybe not. But it does mean that there are newer players in town and they are a force to be reckoned with.