Technology is, by definition, a thrilling and constantly changing field. It becomes even more enthralling when it is combined with something as essential and ever-evolving as finance. Sometimes it is worth taking a step back to see the specific ways technology is changing finance.
The world of finance was a familiar and relatively stable place for many decades. It used the same processes, systems, and tools. Banks and insurance companies had stable business models that were both profitable and predictable. Everyone was content with the status quo and there was very little innovation.
This is certainly not the case anymore. Over the last few years, indifference was replaced by disruption and tech companies started to occupy influential positions in the industry.
New innovation is happening all around finance. Exciting developments are occurring in all areas of finance, from banking and insurance to fiduciary financial servies. A new frontier of user-friendly fin-tech solutions is catching the attention of business owners and decision-makers.
It’s difficult to predict which innovations will be successful and which will be soon replaced by better iterations. Here are some of the most promising and exciting trends in the financial industry.
Although online lending is now quite commonplace, it wasn’t that long ago that it was still a new idea. The Great Recession (2008) was the catalyst for the industry. As a means of compensating for the irresponsible lending behavior they had displayed over the past five years, banks began to impose stricter and more inclusive regulations.
Individuals seeking credit, even those with a strong credit history, were not being approved for loans. The banks became extremely averse to risk, and money flow from traditional lenders to individual borrowers dried up.
Online lending was created to help fill the gap left by the financial crisis. This was just the beginning. Alternative lending options were only possible because traditional banks no longer lend. Online lending has been growing in a world where banks are no longer able to lend.
Online lending is very appealing from the consumer’s perspective. Online lending is quick, simple, flexible, convenient, and more accessible than ever. Online lenders offer products such as unsecured business loans in addition to traditional lending.
The industry has seen remarkable growth due to increased access and greater variety of loan products. But technology is ultimately responsible for these successes. Big data allows for quicker application processing, easier underwriting and faster approvals. The industry will only continue to grow as technology improves.
The banks have always been responsible for who gets money, how much they get and what terms they attach. Online lending has shown that they don’t have the same influence they had before the financial crash. Blockchain is another technology that contributes to this shift.
Although the blockchain is not yet widely adopted, it is already in place. Once the market adopts it, it will revolutionize the way financial transactions are done. The decentralized nature and ease of use of blockchain will allow individuals to send and get money, effectively cutting out the banks. It will be as simple and as secure to buy a house than it is to purchase candy bars from a vending machine. Individual savings will be more liquid and secure.
Artificial intelligence (AI), has made great strides in investing and finance. Machine learning, a subset AI, has allowed investment banks and hedge funds to make better predictions. Sentient, an AI-based company, is a prime example. Their trading algorithm uses large data sets to predict the most profitable trading patterns.
To predict the outcome of a stock, the technology uses trillions of trading scenarios from public sources. Data is used to identify patterns and develop strategies. A trading company then uses these strategies in live trading.
Every month, we see more of these systems emerge. AI-based algorithms will soon be the basis of major corporate investing decisions in a few years.
Cybersecurity concerns are increasing as more industry moves online. These concerns will only grow as third-party vendors, cross-border data exchanges, mobile technologies, and other technology become more common. Businesses will have to increase their security spending and address these issues as they build out their technology stacks. Failure to take proactive cybersecurity measures could lead to financial collapse for large financial institutions.
Finance and big data have become synonymous. Big data, whether it’s AI, blockchain or proprietary lending approvals processes, plays an important role in illuminating and clarifying positions and promoting greater value to businesses and customers. The future of finance is uncertain, but there are big innovations in the pipeline.
These trends will help us all, investors, consumers, businesses and entrepreneurs alike, make better financial decisions.