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FinTech – Metamorphosis in the Financial Services Arena

FinTech – Metamorphosis in the Financial Services Arena
December 08, 2017

Co-Author:R.Shanmuganathan

Prelude

Technology has revolutionized the way we do things in our day-to-day life, ranging from Shopping to Socializing. Financial services (FS) industry is no more an exemption to this change, as service providers are poised to adopt new technologies to improve the quality and pace in the delivery of services. As we are in the era of millennial, who grow with mobiles and electronic gadgets and want everything at the click of a button, there is a paradigm shift in the way companies deliver services to their clients from their traditional way of business.

FinTech – Buzz word in the Biz world

FinTech is a portmanteau word of “Finance and Technology”- harnessing cutting-edge technologies, tools, models, processes and practices in the financial services ecosystem, thus there is a radical change in the way business is being done.

FinTech – Invigorating innovation

Innovation and time-to-Market are the two faces of the FS industry coin. Companies, which sell the same old products for years, in the course of time would wither away from the Industry owing to the prevailing competition in this sector.

FinTech entails the application of Technologies viz., - Big Data, BlockChain, IOT etc., in the core segments - Retail Banking, Commercial Banking, Investment Banking, Capital Markets, Insurance, etc.

Banking and other financial institutions are already poised to adopt these robust technologies to scale up their Business operations and expand their products and service offerings horizon.

One example which best depicts tangible benefits of FinTech is “Payments- on the go”. Gone are the days when we had to stand in a long, convoluted queue to transfer money to our friends or relatives in the banks. With the apps installed in our smartphones, we can transfer money to our buddies in no time, anywhere in the globe.

According to Global FinTech Survey, global investments in FinTech Arena has been pegged at $12 billion in 2014 and sees an upward trend in the ensuing years as companies are exploring ways to invigorate their innovation in their service offerings with the backing of Technology. As many companies are foraying into new markets and are shrewd in cost optimization, adoption of emerging technologies is the need of the hour.

Big Data Analytics – Key to Sagacious decisions

Many Industry Experts claim that the future of Financial Services Industry would be decided by Data analytics as “Data” is touted to be the “Next Oil” and going to rule the roost. Since crucial business decisions are hinged on the reliability and veracity of the Data, the role of Analytics in FS industry is inevitable and phenomenal.

Consider the process of Lending Loans where traditional Underwriters evaluate the application of Loans for their customers with only selected few information, based on which loan would be awarded. By doing so, UW might inadvertently overlook certain critical risk information, which may pose a threat in the form of Loan Default from their customers.

With Big Data Analytics in place, UW can mine data from various sources – viz. credit ratings of the customer from Rating Agencies, to get an organized and meaningful information.

Same is the case in Insurance Underwriting as well, for eg : in Auto Insurance, Underwriters can analyze the driving patterns of their insureds with the help of “Telematics devices – Sensors fitted to the Vehicles to transmit data”.

As Big Data and Internet of Things work in tandem, Underwriters can have a complete cognizance on the driving patterns of their insureds and are in a position to predict the likelihood of the future losses.

Leveraging the benefits of Big Data Analytics helps insurers improve the loss ratio and save millions of dollars. With the increasing demand for Usage-based models, IOT, wearables and Autonomous cars, insurers are tending to innovate and experiment with new business models, which paves the way for innovative solutions.

Leveraging the benefits of Big Data Analytics helps insurers improve the loss ratio and save millions of dollars

FinTech in FOREX space

Look at the case of TransferWise, a leading Online Money transfer service provider, which enables customers to transfer money, at 8 times lesser cost compared to traditional methods adopted in Banks. How is that possible?

This is purely based on Peer-to-Peer system, wherein if one wants to transfer money, let’s assume, from USD to GBP, Transferwise’s technology automatically finds a match in the opposite direction, in the sense, it connects this person to a person who wants to transfer money from GBP to USD. It will then match this transaction at real-market exchange rate and then pays out from the local currency of the customer. For this service, Transferwise charges a fee upfront from the customer and the ultimate benefit to the customer is they can avoid paying a higher traditional Banking fee.

This is a quite interesting aspect and the application of technology in an innovative way.

Go Digital – Mantra for Economic Renaissance

In countries like India where “Digital Push” is gaining traction, dependence on Technology is of paramount importance. With the government’s decree on Demonetization of high-end currencies last year, there is a spurt in the usage of Digital Wallets in India.

Moreover, Government of India is mulling over the adoption of Blockchain technology – that offers an online vault or a digital ledger to save money in the form crypto currency like “Bitcoin” whose value skyrocketed from a paltry amount of 0.07 USD in 2010 to 4118.46 USD in a span of just 7 years. So, the conventional way of saving and investing money may go obsolete with the advent of emerging technologies in the financial sector.

Conclusion

FinTech disrupts every nook and cranny of the Financial Services Industry, and companies which adopt these emerging technologies like Big Data, BlockChain and IOT will up the ante and have a prime-mover advantage compared to their peers in the Industry. Though FinTech is gaining popularity in FS space, only Banks have adopted these technologies and segments like Capital Markets and Insurance are yet to reap the benefits of FinTech to the core as it is still in the nascent stage in these segments.