Innovation Trends that are redefining the financial domain with an increasing impact
“We cannot solve problems by using the same kind of thinking we used when we created them.”- Albert Einstein
The history of financial services has been a seesaw in the last decade. This remodelling is motivated by increased consumer expectations, technology growth, regulatory measures, service expansion, etc. However, true motivation traces back to the 2008 global financial crises.
According to Moody’s Analytics, the housing bubble burst caused a $2 trillion decline in economic growth worldwide. A public distrust arose for the conventional banking system and paved the way for new financial players. Two major events speeded up the paradigm shift in the financial industry: Origin of cryptocurrency in 2009 with the Bitcoin v0.1 and bulk market penetration by smartphones.
Most recently, the growth of fintech firms has provided a great impetus to this wave of change in financial services market. According to EY, in 2019, the Fintech adoption in India reached 87% as compared to 52% in 2017.
A few key aspects have made financial phase-shift possible. Digital Payments established a faster and safer way for money transactions with the emergence of PayPal in 1999. The P2P lending practice started by Zopa in 2005, directly matches the money lenders with borrowers online. The cryptocurrency revolution enables an encrypted financial transaction without 3rd party interference. Cognitive Analytics and Artificial Intelligence have inspired smart banking and services like Chatbots and Voice banking. After the 2016 demonetization in India, Fintech startups grew sizably with their holistic services at the touch of a screen and have been neck to neck with the traditional banks. Paytm is a great case in point.
As an extension of the key transformations, the banking and financial services industry is about to undergo many critical changes in the coming days, experts argue. Here are five megatrends that are changing the face of financial services:
Disruptive Business Models: Today financial market is witnessing a major paradigm shift in terms of business models. Primary change areas include products, intermediates, and financial markets, and value networks. E.g., BaaP (Banking as a Platform) redefines traditional banking by joining hands with various other players that were so far out of the boundaries the banking ecosystem. A collaboration of banks with the IT and service industry enables them to serve the customers better by sticking to core functions: deposits, loans, transactions, etc.
Consolidation: The mergers between conventional banks and entities like payments bank, financial firms, Fintech startups, etc. enables provisions like single touch payment, merchant incentives, personalized rewards scheme, etc. E.g., Airtel Payments bank backed by Kotak Mahindra.
Cashless Ecosystem: This is an upgrade above the existing payment methods. Mobile banking, internet banking, streamlined payments, integrated platforms, P2P transfers, and next-gen security are elements that earn customer satisfaction. Financial units will have an advantage with access to customer’s behavioural patterns through predictive analysis.
Innovative Insurance: Insurer’s strategies are bound to change with online insurance. Proactive client management and customized service will be possible via a ubiquitous connection over devices like wearables and smart home gadgets. Standardized platforms will give an edge to insurance companies with financial institutions as they are a nexus of consumer data.
New Market Dynamics: With digitization evident in trading, customer focus will shift towards smart trading based on algorithms. With the involvement of information platforms, market liquidity, connectivity, and access will elevate. E.g., Algomi, a software company in the UK helps the members increase liquidity and workflow through their technology.In a nutshell, these trends may seem disruptive at the start, but their full-scale utilization is yet to be explored and has great potential. Caution needs to be maintained regarding data-integrity and security, but that appears a small price for a greater good.
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