Fintech – Metamorphosis in the Financial Services Arena

Prelude
Technology has revolutionized the way we do things in our day-to-day life, ranging from Shopping to
Socializing. Financial services (FS) industry is no more an exemption to this Tsunami of change, as service
providers are poised to adopt new technologies to improve the quality and pace in the delivery of services.
As we are in the era of millennials, who grow with mobiles and electronic gadgets and want everything at
the click of a button, there is a paradigm shift in the way companies deliver services to their clients from
their traditional way of business.
Fintech – Buzz word in the Biz world
Fintech is a portmanteau word of “Finance and Technology”- harnessing cutting-edge technologies,
tools, models, processes and practices in the financial services ecosystem, thus there is a radical change in
the way business is being done.
Fintech – Invigorating innovation
Innovation and being Time-to-Market are the two faces of the FS industry coin. Companies, which sell
the same old products for years, in the course of time would wither away from the Industry owing to the
prevailing competition in this sector.
Fintech entails the application of Technologies viz., - Big Data, BlockChain, IOT etc., in the core
segments - Retail Banking, Commercial Banking, Investment Banking, Capital Markets, Insurance, etc.
Banking and other financial institutions are already poised to adopt these robust technologies to scale up
their Business operations and expand their products and service offerings horizon.
One peachy example that best depicts tangible benefits of Fintech is “Payments- on the go”. Gone are
the days when we had to stand in a long, convoluted queue to transfer money to our friends or relatives in
the banks. With the apps installed in our smartphones, we can transfer money to our buddies in no time,
anywhere in the globe.
According to Global Fintech Survey, global investments in Fintech Arena has been pegged at $12 billion
in 2014 and sees an upward trend in the ensuing years as companies are exploring ways to invigorate their
innovation in their service offerings with the backing of Technology. As many companies are foraying into
new markets and are shrewd in cost optimization, adoption of emerging technologies is the need of the
hour.
Big Data Analytics – Key to Sagacious decisions
Many Industry Experts claim that the future of Financial Services Industry would be decided by Data
analytics as “Data” is touted to be the “Next Oil” and going to rule the roost. Since crucial business decisions
are hinged on the reliability and veracity of the Data, the role of Analytics in FS industry is inevitable and
phenomenal.
Consider the process of Lending Loans where traditional Underwriters evaluate the application of Loans
for their customers with only selected few information, based on which loan would be awarded. By doing
so, UW might inadvertently overlook certain critical risk information, which may pose a threat in the form
of Loan Default from their customers.
With Big Data Analytics in place, UW can mine data from various sources – viz. credit ratings of the
customer from Rating Agencies, to get an organized and meaningful information.
Same is the case in Insurance Underwriting as well, for eg : in Auto Insurance, Underwriters can analyze
the driving patterns of their insureds with the help of “Telematics devices – Sensors fitted to the Vehicles
to transmit data”.
As Big Data and Internet of Things work in tandem, Underwriters can have a complete cognizance on the
driving patterns of their insureds and are in a position to predict the likelihood of the future losses. If the
analysis reveals that the insured is highly-risky, then they can deny renewals for such insureds.
Leveraging the benefits of Big Data Analytics helps insurers improve their loss ratio and save millions of
dollars.

Fintech in FOREX space

Look at the case of TransferWise, a leading Online Money transfer service provider, which enables
customers to transfer money, at 8 times lesser cost compared to traditional methods adopted in Banks. How
is that possible?
This is purely based on Peer-to-Peer system, wherein if one wants to transfer money, let’s assume, from
USD to GBP, Transferwise’s technology automatically finds a match in the opposite direction, in the sense,
it connects this person to a person who wants to transfer money from GBP to USD. It will then matche this
transaction at real-market exchange rate and then pays out from the local currency of the customer. For this
service, Transferwise charges a fee upfront from the customer and the ultimate benefit to the customer is
they can avoid paying a higher traditional Banking fee.
This is a quite interesting aspect and the application of technology in an innovative way.
Go Digital – Mantra for Economic Renaissance
In countries like India where “Digital Push” is gaining traction, dependence on Technology is of
paramount importance. With the government’s decree on Demonetization of high-end currencies last year,
there is a spurt in the usage of Digital Wallets in India.
Moreover, Government of India is mulling over the adoption of Blockchain technology – that offers an
online vault or a digital ledger to save money in the form crypto currency like “Bitcoin” whose value
skyrocketed from a paltry amount of 0.07 USD in 2010 to 4118.46 USD in a span of just 7 years. So, the
conventional way of saving and investing money may go obsolete with the advent of emerging technologies
in the financial sector.
Conclusion
Fintech disrupts every nook and cranny of the Financial Services Industry, and companies who adopt
these emerging technologies like Big Data, BlockChain and IOT will up the ante and have a prime-mover
advantage compared to their peers in the Industry. Though Fintech is gaining popularity in FS space, only
Banks have adopted these technologies and other segments like Capital Markets and Insurance are yet to
reap the benefits of Fintech to the core as it is still in the nascent stage in these segments.