Technology, by definition, is an exciting space. But when you combine it with something as important and transformational as finance, it only becomes more powerful and alluring. And sometimes it pays to take a step back and look at the specific ways in which technology is changing the world of finance for the better.
Technology Meets Finance: 4 Exciting Trends
For many decades, the world of finance hummed along with the same systems, processes, and tools. For banks and insurance companies, business models were profitable, yet static. There was little in the way of innovation or progress and everyone was comfortable with the status quo.
However, this is no longer the case. Disruption has replaced indifference and tech companies have commandeered influential positions within the industry.
Everywhere you look, fresh innovation is occurring throughout the world of finance. From banking to insurance to investing to payment processing, exciting developments are unfolding and a new frontier of lean, user friendly fin-tech solutions are seizing the attention of decision makers and business owners.
At this point, it’s tough to know which innovations will stick and which ones will soon be replaced by superior iterations – but there’s a lot to like!
Here’s a look at some of the more exciting and promising trends that are already introducing positive change throughout the financial world.
1. Online Lending
Online lending seems pretty commonplace in 2019, but it wasn’t long ago that it was a revolutionary idea without much proof of concept. The industry was essentially born out of the financial crisis of 2007-2008. At that time, banks were enacting stricter stipulations and less inclusive regulations as a way of covering for some of the irresponsible lending behaviors they’d exhibited over the previous five years.
Furthermore, individuals seeking credit – even those who had a relatively strong credit profile – weren’t getting loans. The banks became strongly adverse to risk and the flow of money from traditional lenders to individual borrowers dried up.
If the financial crisis created a gap in financing, the online lending industry moved in to fill this gap with an alternative. But this was only the beginning. The absence of lending by traditional banks only opened the door to non bank lenders and other alternative lending options. Banks have long since loosened their restrictions and it’s superior technology and innovation that’s allowed the online lending industry to continue growing at a time when banks no longer have the solid footing they once enjoyed.
From the consumer side of things, online lending is highly appealing. It’s quick, easy, flexible, and convenient – and there are more options than ever. In addition to traditional lending, you’ll also find online lenders who offer products like unsecured business loans.
Increased access combined with greater loan product diversity has enabled the industry to expand at an astonishing pace, but it’s ultimately technology that’s responsible for the successes in this area. The abundance of big data has paved the way for faster application processes, smoother underwriting, and quicker approvals. As the technology improves even more, the industry will continue to expand.
2. Blockchain and Decentralized Banking
Historically, the banks have been in charge of who gets money, how much money they get, and what terms are attached. But as online lending has showed, they no longer have as much influence as they did before the financial crash. Blockchain is another technology contributing to this shift.
The blockchain is still awaiting mass adoption, but the infrastructure is there. And once the marketplace makes the adoption, it’ll completely change the way financial transactions are handled. In particular, the decentralized nature of blockchain will make it simpler for individuals to send and receive money – essentially cutting the banks out of the picture. Buying a house will become as easy and secure as buying a candy bar out of a vending machine. Even individual savings will be more secure and liquid.
3. AI and Trading Algorithms
Artificial intelligence (AI) has developed tremendous inroads in the world of finance and investing. In particular, machine learning – a subset of AI – has enabled hedge funds and investment banks to make better predictions. AI-based company Sentient is a great example of this. They’ve managed to create a trading algorithm that uses massive data sets to derive specific trading patterns and forecast the trends that are most likely to work.
“The technology literally takes trillions of trading situations from public sources to predict the outcome of a particular stock,” industry insider Amelia Matters writes. “The data collected is also used to provide insightful patterns and work out strategies. These strategies are then used by a trading company in live trading.”
We’re seeing more and more systems like this arise every month. Within a couple of years, AI-based algorithms will be making the majority of all investing decisions at major corporations.
4. Cybersecurity Concerns Intensify
As more of the industry goes online and into the cloud, heightened concerns around cybersecurity continue to rise. In a 2016 study of CEOs around the world, 69 percent of financial services’ CEOs said they were “somewhat” or “extremely” concerned about cyber threats, compared to just 61 percent of CEOs across all sectors.
As the use of third-party vendors, cross-border data exchanges, and mobile technologies continues to grow, these concerns will only intensify. Security spending will rise and businesses will be forced to address this as they develop their technology stacks and internal processes. Neglecting proactive cybersecurity could put major financial organizations at risk of collapse.
The Future of Finance
Finance and big data are quickly becoming synonymous. Whether it’s blockchain, AI, or proprietary lending approval processes, big data plays a powerful role in illuminating information, clarifying positions, and promoting greater value for businesses and their customers. There’s no telling exactly what the future holds for the world of finance, but big things are coming down the innovation pipeline.
Remaining aware of these trends will allow us all – businesses, entrepreneurs, consumers, and investors alike – to make more intelligent financial decisions.