The advancement of digital technology is enabling ‘fintech’, or a new breed of financial technology, which represents a major reorganization of the services offered in the financial services industry. Banks and other financial institutions have long been entrenched as intermediaries between the financial system – financial services offered - and consumers. With fintech, the traditional ‘all under one umbrella’ approach of intermediaries is disappearing as people increasingly use computers and mobile devices. Just think how often you go to the local bank branch now – and what it looks like. I recently made a rare appearance - it was like a ‘high tech ghost town – with few people, but lots of electronics for doing what was needed. And the bankers present said that business is great – just different.
This is the second of a series of four articles on our digital future, where we explore the opportunities and impacts of digital technologies in a few areas. This article, Part 2 in the series, focusing on the financial services industry, looks at the evolving ‘fintech’ sector and how it is changing industry structure in financial services – and changing the very structure of how money flows. Part 1 looks at the digital future as it relates to the subscription economy – where increasingly consumers subscribe to rather than buy goods and services. Part 3 focuses on how our digital future may impact our individual and collective health – and how that may have ramifications in other areas of life and community. Finally, Part 4, on digital government, dives into how digital technologies are transforming the delivery of government services, and how this transformation might affect the very way we are governed.
Fintech is the disruptive force in the financial services industry which involves the integration of digital technology into financial services offerings to add value to consumers. For example, near immediate load approval for home buyers is such a fintech value added service.
Fintech involves unbundling financial services offerings and marketing them to specific existing or new segments. Value added by fintech startups tends to expand financial inclusion, uses technology to cut down on operational costs, and offers greater convenience.
One difficulty that fintech firms have is the abundance of regulatory hurdles. And there surely is some resistance to change on the part of entrenched competitors.
Here are some financial services that are being ‘unbundled’ by fintech (all using block chain technology):
- Cryptocurrency and digital cash – This involves the use of block chain technology, including distributed ledger technology (DLT), which removes banks as the financial intermediary.
- Smart contracts – These use computer programs to automatically execute contracts between buyers and sellers.
- Open banking – This is a concept that pushes for third-party access to bank data in an open network with financial institutions.
Other emerging services include:
- simplification and streamlining of the insurance industry
- helping financial services firms comply with financial regulations
- providing investment advice to consumers automatically via robo-advisors
- targeting specific services to disadvantaged, underserved, or low-income individuals
- addressing cyber security issues head on
Digitally driven financial services in the future look like they will be much more inclusive and individually tailored and targeted than in the past.
How could trending fintech services be leveraged to help your particular situation?
This Post is Part of the Series: Digital Future
This series of four articles explores the opportunities and impacts of digital technologies in a few areas.