Innovation In Finance – The Future Of Money

Technology has irreversibly redefined the way we interact with money.

Transformative ideas and innovations, many emerging in the wake of financial crises, are spreading faster and more impactfully than ever before. Financial institutions need to have a business strategy focused on thriving in a fully digital world. Innovation helps that strategy come to life by empowering organizations to strategically adopt disruptive technologies, such as artificial intelligence (AI), advanced analytics and cloud, and enable new services and capabilities.

Having invested in companies like Jupiter Money, Quantifi and Tonetag, I first-hand understand that when companies cohesively focus on specific business challenges, identify the right approaches to address them and accelerate transformation, innovation flourishes and true digital transformation can take place.

o  Contactless Payments To Accommodate Changes In Consumer Behavior

Adjusting to consumer behavioural changes is a top priority for retailers as they work to meet consumer needs, while also providing the latest payment options. It is also a significant trend everywhere due to the recent pandemic. There will be 2.7 billion contactless cards in circulation by 2023, thanks to the technology taking off in markets such as the US, Brazil, and South Asia.

In the pioneering early-adopter markets such as the UK, Canada, Europe and Australia, the number of transactions carried out via a contactless card is growing fast. In the UK, for example, tap and pay now accounts for more than 40% of all card transactions.

o  Branchless Banking – Facilitating Global Financial Inclusion

The current global pandemic has made it tough for banks to operate worldwide. As per Statista, the banking sector revenues decreased by 489 billion dollars in 2021 because of the economic crisis created by the COVID-19 pandemic. In such a scenario, financial inclusion is the topmost priority of any country across the world. And here, a ground-breaking branchless solution can be of great help.

As per a GSMA report, transactions of approximately $2.1 billion take place across the world daily. Apart from this, $500 million gets digitised by mobile banking agents every day.

Branchless banking tech enables traditional banks to expand their network of branches, maximize market share and services through authorized agents in a cost-effective manner. It allows them to reach out to the unbanked population across the globe.

Taking cognizance of the existing financial strain, it is imperative to realign our focus as rural consumption is all set to play a catalytic role in the growth of the overall economy. With microfinance being an integral part of the rural economy, bucketing financial services like lending and insurance through branchless banking actively serving as agents of change can encourage and equip the rural cohort with the means to meet their financial goals.

o  Parametric Insurance

In recent years, product innovation and data analytics have expanded the scope of commercial insurance solutions to offer coverage for a wider range of threats, exposures and perils. With its transparent and fast claims payment and ability to offer a pay-out without actual physical damage to an asset, parametric or index-based solutions are often brought to the table of discussion when covering hard to insure risks.

Fundamentally, parametric or index-based solutions are a type of insurance that covers the probability of a predefined event happening instead of indemnifying actual loss incurred.

o  Delivering Impeccable Customer Service

The traditional idea of standing in line at a brick and mortar bank is fading – quickly. Fintech companies have developed sophisticated methods of interacting with their customers, without the need for direct human intervention.

In response to this trend, fintech companies have developed sophisticated methods of interacting with their customers, without the need for direct human intervention: chatbots. These programs replace the traditional customer service role with a combination of specialised AI applications which is machine learning or ML and natural language processing or NLP; the latter allows the program to understand human language, while the former allows it to better respond to queries over time.

Chatbots are cheaper to build and maintain than specialist staff, offering a degree of conversational engagement that users appreciate, while allowing them to easily complete complex queries regarding their finances.

o  The Need For Collaboration

Largely, the rise of AI and blockchain in the financial sector has been pioneered by fintech companies, which often resemble technology companies more than financial institutions of old.

These innovative start-ups are developing the technology which will drive the next evolution of the financial industry – but their size makes scaling effectively a difficult prospect. By contrast, traditional finance companies, such as banks, are well poised to deliver the latest financial services innovations on a large scale, thanks to decades of carefully developed relationships with customers and stakeholders. However, the institutional inertia of such large organisations can dampen the flexibility needed to effectively develop and implement these solutions.

By collaborating, companies at either end of the scale can offset their respective weaknesses: smaller fintech companies can gain access to resources otherwise out of their reach, while larger institutions get the benefit of a nimble partner able to quickly develop a working product, and for an often-lower cost.

Concluding Thoughts

Fintech is a broad term that has become associated with the application of technological innovation in the financial services industry. While the march of technology has always had an impact on the financial services – as it has on every industry – fintech is forcing a rapid evolution in the sector, as disruptive innovations like blockchain have forged new paths, changing the future of finance seemingly overnight.

Innovation is necessary for the progress of the financial system, and this progress is an essential ingredient for economic growth. The challenge is to devise a regulatory framework which allows innovation, globalization and the financial system to develop while ensuring a proper balance between private and social incentives.

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