There was once a time when financial technology was utilized in back-end support functions for banking institutions and traders. It wasn’t the top priority of venture capitalists to invest in that sector. Public companies in the industry were rarely compared with the top-tier companies of Silicon Valley.
However, there has been a paradigm shift recently. Over the last few years or so most private venture has seen a significant boost as fintech is taking the most share of the investment dollars. Now, Fintech has earned itself to be included in the innovation economy, and its massive growth has made it quite difficult to tell the difference between hype and reality. In recent years, artificial intelligence, blockchain, crypto assets and machine learning, and a plethora of other digitization symptoms have created a buzz in the trade media.
Large global banks educate and galvanize corporate venture and digital incubators to invest, acquire or copy solutions from small businesses and startups. On a global scale, Eastern technology companies introduced messaging apps that have countless users and incorporated financial services in order to outcompete the potential of Western-regulated restrictions. Most of the US tech companies invested a lot of money as well to find ways to offer financial products without utilizing the third rail of regulation.
From Product To Consumer
It’s quite easy to finance in this day and age. There are institutes like banks that hold deposits with interest rates, investment tycoons make investment funds, similarly, insurers and lenders underwrite their client’s risk with capital. There are also factories that sell the product, such as financial advisors, lending officers, or bank branches.
In all these two spectra are highly complicated value chains of software, balance sheets and humans, combined with industry habits. In the end, it’s always the client that visits a store and purchases financial products.
The Digitization Impact
physical conversations were used to happen to establish a relationship with the consumer, are now being conducted on mobile phones. Moreover, numerous examples include American Robo-advisors like Betterment, Asian insurtech like Ping An, or European neobanks like Revolut.
Raw automation is leveraged in the process of assessing, onboarding and serving clients. Furthermore, machine learning and processing of natural language are utilized to generate chat and speech, without the need of having people engage with a live agent.
This type of simple yet direct automation has paved way for huge vertical competition among numerous industry sectors, as they work around to cross-sell and bundle their services. With fintech is on the rise, it gives a cut-throat competition between a digital lender with the digital payment app in a battle to deliver the best digital bank account to their prospects.
Softbank is one of the biggest investors in direct-to-consumer fintech companies to get an opportunity to serve the millennials.
There are millions of small accounts in the mobile apps of clients. Thus, it makes conventional financial investors skeptical whether their economical practices will work in the long haul.
Not only that but also there is fierce competition among large-scale incumbents like Goldman Sachs Group Inc., JP Morgan Chase & Co., Banco Santander, and more. They have brought a new approach to their product-led solutions.
From Customer To Platform
It’s a good start to have digital point solutions, however, they are not the ideal solution for our fintech journey.
For instance, when you need to buy a toothbrush, you don’t go to the toothbrush store. You obviously go to the drug store or supermarket that offers hundreds of dental hygiene products. Similarly, e-commerce platforms offer a diverse range of products for their clients.
Data Aggregation site in the US and the regulatory mandated PSD2 in Europe have introduced the Financial Application Programming Interfaces that enables the data of banking and investment to move across different places and destinations.
Today, the financial institutions that provide assistance to tech companies in terms of renting their charters, licenses, and balance sheets are regarded as banks-as-a-service. These institutions allow any distribution experience to incorporate pertinent financial capabilities.
This has become a challenge for conventional incumbents, who follow old-fashioned practices of manufacturing products and leverage sales channels to push them to their prospects. Now, consumers directly get in touch with finance at the edges of their experience.
For instance, Affirm has a “Buy now and pay later” offering to their customers, Greensky Inc. offers to finance to borrowers living in the homes of home improvement contractors, and Tesla Inc. offers car insurance to their customers. You don’t have to go to a financial institution as they now will come to the point-of-purchase directly.
We are ushering into the age of financial generics where both branded and replica products are sold at the same point of purchase. For instance, Walmart Inc. offers both branded toothbrushes and generic knock-off toothbrushes, similarly, financial generic products can also be sold to people.
These products are not sold as white-labelled versions of financial institutions products like Goldman Sachs and Apple Inc., collaborating to offer a credit card.
Instead, these are the imitation of Foxconn off-brand smartphones, that are manufactured by gaining knowledge and understandings from the iPhone. As financial plumbing comes to light, mainly because of data aggregation and blockchain-based infrastructure, generic knock-off will most definitely increase exponentially.
There was a time when financial product manufacturing was considered an elite level of craft powered with custom-made software. Just like the painting of the Mona Lisa was considered to be the peak of art. Similarly, wealth management platforms and core-banking systems are carefully architected and custom solutions.
Nonetheless, painting a portrait has no competition with the invention of the camera. Likewise, there is a fundamental challenger of financial infrastructure in the form of blockchain-native finance.
The new legacy chassis is unlike traditional chassis which caters to each firm differently. This new and improved legacy is equipped with an account opening, built-in settlement, digital scarcity, trading, underwriting engines and money movement.
Each year, crypto miners spend billions of dollars to prevent cyberattacks and data protection and numerous open-source developers are working relentlessly to make the software secure for all users. While people are still impressed and are going gaga over the financial features of Bitcoin, there is also next-generation programmable blockchain networks, like Ethereum, that are revolutionizing primitives and data standards, creating a highly efficient finance factory.
The first implementation of the new approach has been seen already in the functionality of banking, digital investing, lending, asset management and making payments. While it’s still in its infancy, however, it could show how large financial institutions can leverage it to bring innovation and reshape their industries.
The biggest hindrances that may come to such transformation are the rules and regulations, which dictate how industries come into existence in the past.
All these underlying changes, enabling humans to evolve and adopt a new and pragmatic approach.
It’s surreal to understand why US citizens are reluctant to upgrade themselves from using credit cards for decades, on the other hand, it doesn’t take much time for Apple Inc. to introduce touch-based interfaces on their iPhones. Thus, it’s imperative for entrepreneurs to bring in aesthetically pleasing interfaces and companies manufacture and distribute products to the masses, otherwise, even the best financial manufacturing will most likely fail.
Fintech is on the rise, banks and other financial institutions are becoming aware of this massive change in finance. However, few companies that didn’t adopt this change are now paying the price of losing the battle entirely. The tech companies are leveraging this new approach of finance by directing and diverting their millions of website traffic to their partners and vendors.
Fintech is on the rise, banks and other financial institutions are becoming aware of this massive change in finance. However, few companies that didn’t adopt this change are now paying the price of losing the battle entirely.