Technology’s Impact on Financial Services

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FinTech is everywhere nowadays. The finance people talk about it. The technology people talk about it and the list goes on. Yet, it seems that not everyone has the same view or level of knowledge on the topic. The technology has developed in leaps and bounds over the past two decades, leading the world to the golden age of dot com. As a result, a wide range of business and services are created, among which Fintech is currently the fastest growing segment. This is why everyone jumps on the bandwagon to get a slice of share of the booming business. But how much you know about fintech exactly?

FinTech encompasses various services, such as online payment (PayPal), cloud-based human capital management (Zenefits), online P2P lending (Lending Club), and credit scores and reports monitoring (Credit Karma). It is certainly conceivable that FinTech reshapes the way we think of money. With people around the world getting less and less cash-oriented, it is clear that the convenience of financial services does not have to be positively correlated to the cost of the technology. FinTech companies are often seen as a whole. However, as with banking and financial industries, FinTech is indeed composed of various ecosystems, with some tapping into the consumer market and others providing services to enterprises. It is therefore common to generalize Fintech to either payment or lending services. Yet, if we equate FinTech to either service provision, many more will feel redundant or reluctant to use Fintech, a rather curiously interesting phenomenon.

The traditional financial services sector operates on a closed loop system. As a highly regulated industry, the finance sector has a vast array of capital, regulation and compliance requirements which pose a significantly high barrier to entry among any regulated markets. No matter how mature a Fintech company is, the service provision of which has to strictly adhere to relevant laws and regulations of the country the company operates in. For instance, FinTech companies cannot register or promote themselves as a bank simply by providing lending or payment services unless they meet relevant regulations and operation requirements applied to banks. With all these difficulties ahead, what is the allure of the FinTech that makes CEOs of JPM, GS and MS admit that the industry is here to stay and more importantly, a disruptive force that has the power to adversely impact the finance industry?

This is because we are in an era of “mobile first, digital everything”.

Thanks to the increasing popularity of technology and internet, there is a boom on internet users, time spent on the internet, as well as online information, all of which make consumers accustomed to using a wide variety of customized services through and from the Internet. Whether it is the price setting preference on property websites, the search history on search engines or the precise recommendation of local restaurants, technology is indulging to users’ needs of customization. Tech giants from IBM, Amazon, Facebook, Google, Microsoft and Apple are all trying to better attend consumer requirement and personal preference in each product upgrade. Nowadays, each consumer is unique and their user requirement is specific. They have strong preferences over what to buy and where to buy from. It is without a doubt that consumers play a vital role in determining whether a business model will succeed.

With the help of technology, this consumer-oriented approach is also adopted in the finance servicing sector.

People are what make Fintech a huge success in such a short-period of time. With technology, data which, in the past, was scattered among different service points is now captured systematically. A considerable volume of data is now created, captured and saved, making the data itself far greater than the information it contains.

Thanks to the breakthroughs in data generation and storage, artificial intelligence (“AI”), which in the past belonged only in the science-fiction world, where robots prevail, has become a reality. AI is a field in computer science which is designed to solve cognitive problems in association with human intelligence, such as machine learning, problem solving and behavior recognition.

In other words, the more information we provide to an AI model, the smarter it becomes and the faster it learns. Corporations that employ AI in the business operation provide a colossal amount of data on a daily basis, whether on problem solving or behavior recognition, to enhance its capabilities. The entire machine learning process is the practice of using complex algorithms to enable the AI model to parse a sea volume of data, learn from it, map out and optimize hidden structures and eventually, make a prediction or determination. As a result, the AI model can now predict consumption behavior and credit risks of overdue payment. With this information in procession, the model can therefore provide more relevant product recommendations to the customers, or more accurate evaluations on the risk premium of the borrowers to the Chief Risk Officer. For each individual user, all the information is the most relevant and all the interest pricing is the most adequate.

Such kind of technology is developed in the tech industry and such an amount of data is captured on the internet. When the decision lies at the hands of consumers, be it payment method, insurance, loan or investment products, consumers can now have a say in what types of financial services they need. In addition to the digital and technology boom of the past decade, it is increasingly clear that Fintech makes services more user-oriented than traditional finance services. This is why, despite your view on Fintech, you have to have a grasp on this booming technology as it was not meant to revolutionize any industries, but to make financial services better and more inclusive.

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