In his 1997 best-selling book, The Innovator’s Dilemma, Harvard Business School professor Clayton M. Christensen coined the term disruptive technology to signify new ground-breaking technologies that shake up, and in some cases even eliminate, the status quo established by sustaining technologies. Christensen is also the creator of the term disruptive innovation, a related concept that refers to the use of that new technology.
Almost three decades after Christensen first introduced these concepts, Financial Technology is now one of the biggest stars of the disruptive technology or the disruptive innovation club. In fact, the term FinTech is now as much a part of common business parlance as the ‘Internet’, ‘smartphone’ and ‘eCommerce’.
FinTech – Breaking Down The Barriers Between Technology & Financial Services
FinTech is an umbrella term that encompasses the myriad and innovative ways technology is used to design, deliver and transform financial services worldwide. It originally referred to computer technology applied mainly to the back office operations of banks or trading firms. However, in the 21st century, especially since the end of its first decade, FinTech as a concept has broadened its reach and deepened its scope. Its disruptive nature notwithstanding, FinTech has not made traditional financial firms obsolete (at least not yet). However, it is revolutionising the global financial landscape by forcing traditional firms to review their outdated business paradigms and come up with effective, low-cost, customer-centric solutions.
To meet the challenges posed by FinTech players such as robo-advisory and asset management firms, online banks, peer-to-peer lending platforms, mobile payment firms and online remittance firms like InstaReM, mainstream financial institutions are recognising the long-term potential of FinTech and embracing it to help them appropriately respond to new trends, lower their costs, revise their value propositions and improve their customer relationships. This is a clear sign of increasing symbiotic convergence between the disruptor and the disrupted, and this relationship is set to become even stronger in the coming years.
Some Common Applications Of FinTech
In broad terms, the term FinTech can apply to any invention or innovation that can improve or optimise the way people conduct business and financial transactions. Many of these solutions are based on cutting-edge technologies like Artificial Intelligence, Blockchain and Deep Learning that enable financial services firms to collect rich swathes of customer data, deduce usage patterns and even replace human intervention by automated algorithms. This convergence between Finance and Technology has incubated a host of useful products and services that are redefining financial services and making them more accessible to the masses. These include:
- Fund transfers and online remittance tools
- Mobile wallets
- Online payments platforms for shopping and entity-to-entity (personal and commercial)
- Insurance aggregators
- Automated investment management advisors
- Peer-to-peer (P2P) lending and Crowdfunding tools
- Financial assets trading platforms
These products and services broaden the digital ecosystem, and thus, make finance more inclusive, democratic and customer-focused.
8 Ways FinTech Is Disrupting The Traditional Financial Ecosystem
The FinTech industry’s innovation and technology-oriented belief system are ushering in a new era of transparency, efficiency and inclusivity in the area of financial services. It is also reshaping customer expectations and setting new, higher standards for user experience and satisfaction.
Here are some of the many ways FinTech is not only talking the talk, but also walking the walk to change global finance for the better:
#1: Online Cashless Transaction Systems Facilitate Seamless Online Shopping Through eCommerce Sites Like Amazon, eBay, Alibaba, etc
With the near-ubiquity of the Internet, more and more people worldwide are changing their preferred mode of shopping from brick-and-mortar (i.e. offline) to online. These customers are also better-informed about scams and frauds, and are, therefore, seeking reliable, verifiable avenues to pay for their online shopping expeditions. Moreover, many online sellers are willing to accept payments via web and mobile applications, removing the need for a buyer to pay via a traditional merchant bank account. FinTech firms such as InstaReM and PayPal offer solutions that make it easier to make online purchases seamlessly, quickly and safely.
#2: Corporate Online Payment Systems Enable Firms To Collect Payments On Services Rendered & Make Payments On Services Utilised
For any business to survive and thrive, it must have an efficient money management system. Through this system, it should be able to collect payments on its invoices, failing which it runs the risk of suffering a loss of revenue (and thus profit) and accumulating bad debt. In the long run, this is likely to make the firm’s operations unsustainable. At the other end of the spectrum, the firm must also be able to pay its creditors, staff and suppliers. A failure to do so may have legal repercussions and also lead to a loss of its business reputation.
Firms like InstaReM enable corporate users to manage and control their payments to multiple beneficiaries in multiple currencies. This helps firms improve the efficiency and profitability of their operations and maintain their reputations as reliable business partners.
#3: Trading Platforms Collect & Analyse User And Market Data To Uncover Trends, Provide Aggregated Market Views, Make Forecasts And Increase The Profit Potential Of Traders And Firms
Thanks to the rise of FinTech, the infrastructure around capital markets has undergone rapid changes, particularly in the way technologically-enabled platforms have appeared in traditional over-the-counter-driven markets. This ‘electronification’ (sic) of OTC products has been driven both by the post-financial crisis regulatory environment (e.g. Sarbanes-Oxley, Basel III or the European Securities and Markets Authority) and by the lure of economies of scale (which is expected to raise revenues and eventually profits). Another reason for the increased adoption of trading platforms is that they suit certain asset classes and can help them reach a critical mass of supply and demand in the market. Finally, many platforms provide comprehensive data analytics capability which results in better-informed buyers, sellers and intermediaries, and thus more dynamic financial markets.
#4: Online And Mobile Banking/Money Transfer Solutions Speed Up Transactions, Reduce The Need For Paper-Based Currency (Cash, Cheques) And Improve Financial Traceability
The growing penetration of mobile telephony in almost every corner of the world has encouraged the growth of FinTech in the mobile banking space. Traditional banks charge fees for funds transfer, which over time, can build up to a loss-inducing endeavour for the parties involved. Also, in developing countries with weak financial structures, the number of unbanked and underbanked residents is often very high. Mobile banking eWallet solutions like M-Pesa and PhonePe aim to provide a solution to both problems. Not only are they cheaper to use than banks and established Money Transfer Operators (MTOs), but they also bring more people under the financial services umbrella. InstaReM is also a very important player in this booming FinTech sector, with its strong processes and robust systems that cover over 3 billion people around the world.
From a customer standpoint, both mobile banking and online banking solutions offer intuitive product designs and 24X7 accessibility. They also minimise human ‘middle-man’ intervention and thus speed up the transaction process. From the provider’s perspective, these products and services improve customer engagement and retention – a win-win for both sides. Moreover, many banks utilise FinTech to execute mission-critical but non-core tasks such as KYC (Know Your Customer) and AML (Anti-Money Laundering). Not only does this free up bank resources for core tasks, but also makes the financial system more transparent by stifling crime, preventing tax evasion and opening up the ‘shadow economy’.
#5: Automated, Algorithm-Driven Wealth Management And Personal Finance Systems Provide Accurate Transactional And Contextual Data To Enable Users To Take Appropriate Financial Decisions With Little Or No Human Supervision
Over the past decade, FinTech has brought about two major changes to the investment management (assets/wealth/personal finance) industry: robo-advisory firms have grown in both number and size, and Big Data-driven analysis is becoming the norm rather than the exception.
As individuals take greater responsibility for their own investments and finances, they are ideally placed to use the tools provided by these firms. By providing automated advice based on trading formulae and algorithms, their digital, customer-centric approach is ideal for customer- engagement and retention. In order to replicate the successful business model of these firms, incumbent financial services firms are forced to make greater investments in FinTech to create customised, low-cost solutions, particularly for high-value individual investors. This proliferation of choice is good news for customers because this gives them the advantage of a quantitative-based approach to investing while keeping their expenses (through outgoing commissions and fees) down to a minimum.
#6: Fintech Is Challenging Traditional Insurance Companies’ Positions In The Value Chain By Enabling The Creation Of Products Tailored To Customers’ Specific Needs
Most insurance companies know a lot about their customers. However, when it comes to finding ways to monetise customer data, FinTech firms have the edge. By using sophisticated analytics and data models, they are better able to identify, quantify and mitigate risk, ultimately broadening their customer base and maximising their profits.
At the other end of the spectrum, FinTech is also helping users. Savvy consumers are now demanding insurance products with features tailored to their specific needs such as location, timeframe, age, lifestyle and uses. Thanks to aggregator products, consumers are able to compare insurance solutions from different providers, and choose what works best for them. Thus, a one-size-fits-all policy is no longer acceptable. Consumers’ demand for ‘More-Better-Now!’ pushes firms to expand the scope and scale of their data collection activities. This not only helps them design tailored insurance products for their customers, but also enables them to find newer ways to convert all the collected data into tangible profits. Without the paradigm shift brought about by FinTech, data monetisation in the insurance industry would not have been possible.
#7: Peer-To-Peer (P2P) Lending Platforms Enable Individuals To Borrow And Lend Money Without The Involvement Of Intermediary Financial Institutions
The traditional lending model involves banks that act as intermediaries between clients looking for a loan (the borrower) and clients looking for some interest income on their savings. The bank runs a credit check on the borrower and determines if he qualifies for the loan. If he does, the bank also brings the two entities together and determines the interest rate the borrower will have to pay.
The problem with this model is that some borrowers may not qualify for the loan, while those who do may find these rates prohibitive. FinTech is disrupting this model in a major way through the innovative peer-to-peer lending model. This system is ideal for individuals who want to avoid the high interest rates on traditional bank loans as well as those whose loan applications are rejected. P2P platforms eliminate the middleman (i.e. the bank) and directly connect borrowers with potential lenders. As a result, borrowers get better interest rates, and lenders can earn income which is often higher than the income generated through banks’ savings vehicles.
#8: New Cutting-Edge Technologies Are Strengthening Cyber Security And National Financial Security
Artificial Intelligence (AI) and Machine Learning (ML) are revolutionising the way financial transactions are recognised, verified and conducted. Data aggregation platforms, process automation and ML-driven statistical models provide holistic customer views and enable faster transaction validation. This makes Anti Money Laundering operations more efficient and robust, enabling firms and legal authorities to identify fraudulent transactions and penalise the offenders according to the rule of law. Some advanced ML algorithms can even perform detailed analyses on historical transactional records to determine patterns and predict the possibility of fraud before it happens.
Another up-and-coming FinTech area – Biometrics – is also generating a lot of interest. Biometrics such as thumbprints, irises and facial recognition enable user authentication and add an extra layer of security to transactions. Biometrics already has a huge range of applications: from corporate physical security (office ingress/egress) to visa processing, and from national ID card verification to pension income processing.
Leading The FinTech Charge – InstaReM
InstaReM, a fast-growing global remittance / online payments firm based in Singapore, is proud to be at the forefront of the global FinTech revolution.
With its broad network of 8000+ banks in 55+ countries, InstaReM offers users a fast, reliable and low-cost option for cross-border money transfers. The company is committed to providing customers with secure online data access, full transfer amount and easy reconciliations. In addition, customers can enjoy the InstaReM advantage of:-
- Guaranteed Zero-Margin FX Rates: Mid-market rates sourced directly from Reuters and absolutely no margins added.
- No Hidden Charges: There are no hidden charges at all. Just a nominal fee that can be seen on the receipt while setting up a transfer.
- Rewards: Save on every transaction with InstaPoints.
- Best Transfer Amount Guaranteed: Get the best transfer amount there can be.
For corporate users, InstaReM provides a robust institutional platform, MassPay. Using this configurable solution, corporations and SMEs can easily manage and control their high-volume remittances to multiple beneficiaries in multiple currencies. Through MassPay, they can avoid banks’ high currency conversion costs and gain improved exchange rates, and thus avoid incurring potentially large losses due to market and currency volatility.
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