Future of Financial Technology

 

When first developed, fintech served a supporting role; today, it defines an entire sector.

 

For a long time, bankers and traders relied only on financial technology as a back-office support role. Few venture capitalists put money into the market. There was a dearth of comparisons between the industry's public companies and Silicon Valley's high-growth darlings.

 

But in recent years, a lot of changes have taken place. Financial technology (fintech) has seen a significant increase in private venture capital and the proportion of total investment dollars over the past decade. Due to its meteoric rise, it is becoming harder to separate hype from reality in the once-undifferentiated world of financial technology (fintech). Over the past several years, terms like "chatbots," "artificial intelligence," "blockchain," "crypto assets," "roboadvisors," and "neobanks" have become commonplace in the business press.

 

Financial institutions with a global presence have established corporate venture arms and digital incubators to invest in, acquire, and replicate the success of startups' products and services. Companies in the East have established messaging super-apps with hundreds of millions of users and built-in banking services, giving them a competitive edge over their Western counterparts in less-regulated markets. American IT companies also dove in headfirst, coming up with ingenious solutions to meet consumer demand for financial products without crossing the regulatory minefield.

 

WHAT YOU SHOULD TAKE AWAY

The percentage of total venture capital investments that have gone toward fintech companies over the past decade has increased dramatically.

Large incumbents such as JP Morgan Chase & Co., Goldman Sachs Group Inc., Banco Bilbao Vizcaya Argentaria, Banco Santander, and others have released new iterations of their product-led solutions, increasing the level of competition.

Softbank and other investors have poured billions of dollars into direct-to-consumer fintech firms in the hope of attracting the unprofitable millennial demographic.

Simple automation has triggered intense rivalry across formerly separate business spheres.

Tech giants are making a sharp swing into the financial sector, shifting focus from their billions of annual website users to strategic alliances with other businesses.

 

 

It's easier than you might expect to get financing for a product that you sell to end users. Banks store deposits with interest rates, investment managers create investment funds, and lenders and insurers underwrite some client risk with capital, all of which are examples of factories. Finally, there are retail outlets where the product can be purchased, such as banks, financial planners, insurance agents, and loan officers.

 

In between these two poles, regulation and industry norms have stitched together intricate value chains of humans, balance sheets, and software. Ultimately, though, customers still buy financial items from a retailer.

 

Technology's Effects on Society

The entire value chain is through a period of digital transformation. There has been a shift away from face-to-face interactions and toward mobile phone use among front-desk staff as a means of communicating with customers. Banks like Revolut in Europe, Robo-advisors like Betterment in the US, and insurtechs like Ping An in Asia are just a few examples.

 

Assessment, onboarding, and customer service are all getting a dose of raw automation. Instead of interacting with a human, more futuristic interfaces use machine learning and natural language processing to generate conversation and speech.

 

Such easy automation has sparked intense vertical competition as businesses across industries try to package and cross-sell their wares to attract new customers. The top digital lender, for instance, may suddenly have to compete with the top digital payments app for the privilege of providing the top digital bank account.

 

DTC Financial Technology

Softbank and other investors have poured billions of dollars into direct-to-consumer fintech firms in the hope of attracting the unprofitable millennial demographic.

 

Millions of small accounts are used by many mobile apps. Financial institutions are doubtful that these enterprises can generate a positive return on investment over the long term due to their questionable economics.

 

Banks with a long history of dominance in the market, such as JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), Banco Bilbao Vizcaya Argentaria, Banco Santander (SAN), and others, have all recently released updated versions of their product-centric offerings, which has only increased competition. These days, online banking and financial advisory services are standard.

 

Simple automation has triggered intense rivalry across formerly separate business spheres. This has created a situation where the best digital lender is competing with the best digital payments app to provide the greatest digital bank account.

From Point Solution to Platform While digital point solutions are useful, they are not the final objective of our fintech journey.

 

The Aspirin store is not where one goes when in need of a pain reliever. When you shop at a supermarket or a drugstore, you can choose from among thousands of things. In a similar vein, modern social media and e-commerce sites provide their users with a plethora of tools.

 

Collection of Data

With the help of data aggregation sites in the United States and the regulation-mandated Payment Services Directive 2 (PSD2) in Europe, banking and investing data can now be transmitted to several destinations.

 

Banks-as-a-service is financial institutions that rent out their authority, authority, and balance sheets to tech firms. They make it possible to include necessary financial skills in any distribution setting.

 

Incumbents have traditionally manufactured items and pushed them at consumers through sales channels, making this a difficult transition for them. Instead, people deal with financial matters at the periphery of their lives.

 

Affirm integrates credit into the online shopping cart, and Tesla Inc. (TSLA) provides its own auto insurance; Greensky Inc. (GSKY) assists home repair companies in providing finance to borrowers in their houses. Financing is available at the moment of sale, eliminating the need to seek it out elsewhere.

 

Economic Norms

The time of financial "generics" is rapidly approaching. Similar to how Walmart Inc. (WMT) sells both the name-brand and generic versions of Aspirin, as well as Charmin and store-brand toilet paper, the company should be able to market a generic version of a financial product.

 

There is no similarity between these goods and a credit card offered by Goldman Sachs and Apple Inc. (AAPL) under a white label.

 

They are, rather, iPhone-inspired knockoffs manufactured by Foxconn. Cheap generic solutions are anticipated to spread as the financial sector's plumbing becomes open and transparent, thanks in large part to data aggregation and blockchain-based infrastructure.

 

Credit is available at the time of sale, eliminating the need to seek it out elsewhere.

 

Production System Reconstruction

Creating financial products has always been a high-end craft, enabled by one-of-a-kind computer programs. Core banking systems and wealth management platforms are highly architected and bespoke solutions, much like the Sistine Chapel was an example of human ability at its pinnacle.

 

Yet, once the camera was invented, the art of painting portraits was doomed. In a similar vein, blockchain-native financial services pose a significant threat to the established financial system of today.

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