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EFFECT OF TECHNOLOGY ON FINANCIAL SECTOR


Financial


Technology has brought a wave of significant changes in almost all the spheres of life and so has changed the financial sector dynamically too! These has been a decade long journey since the financial companies are constantly employing traditional methods of profit-making. But the present era is making these traditional financers face strong cut-throat competition from others all around in the financial market. Innovators come in with great innovations making the survival of these traditional financers tough in the market. The fintech innovations are inclusive of crowdfunding, peer lending, bitcoin, etc. Also, such innovations take the valuation of these innovators to a skyrocketing price.


According to a World Economic Forum Report, the future holds immense potential for the finance sector in terms of technology. It conducted more than 95+ interviews with different experts and innovators of the industry to have a full-fledged idea of what the future may look like. It is an open card that fintechies these days are trying to have a new and more innovative business model in order to survive in the market.


Let’s have a look at how this is changing the finance industry forever-


Technology on Financial sector

1) DEPLOYMENT OF FOCUSED PRODUCTS AND SERVICES: It has often been observed that several investors have given replication a way. This made them earn great acclaim by those who were too focused on tech knowledge or those who were too much of a penny picker. But the present-day investors are too different in terms of their footsteps, they are laying complete emphasis on valuables of current investors. Previously the banks used to charge a very big amount as a charge for remittance of the money being sent overseas. This not just made NRIs lose on a lot of money but also made them receive the same much later than expected. But with the passage of time, several options for the same have cropped up. Among which, one is Transferwise, which has made sending and receiving money internationally an extremely hassle-free task. It is a company based out of the UK. Not that it just transfers money quickly but it also makes transfer much cheaper with the least remittance charges. Due to such efficient services that they provide, they have been making immense profits with the same. According to a recent survey report, they see around euro 500 million transactions by different transactors all around the globe.


2) AUTOMATION AND COMMERCIALIZATION: The recent advancement also includes investors being tech-savvy and trying to implement automation on their earlier manually operated system. This makes the resources available for regular use of elite as well as non-elite masses. Previously it was just focused on the former of the two. Markets are seeing an emergence of a variety of wealth management assistants like roboadviser Wealthfront, Nutmeg etc. These facilitate the users to allocate assets, have professional investment advice, have detailed idea of tax depletion/minimisation etc. Everything under an umbrella, one can call it a virtual finance assistant. The point is why would anyone go for a traditional adviser anymore? The virtual agent is making the savers overcome all the limitations of a traditional adviser. It is cheap, it is quick, there's the least chance of data breach and privacy hindrance etc. This change in the finance sector helps the newcomer investors to save and invest them well than relying on physical advisers who charge a hefty sum out of their savings. So, that way technology has changed the investment market a lot!


Automation


3) STRATEGIC DATA USAGE: Data is something that is the key to financial institutions. Whether it's about taking a loan from a bank or about claiming your credit points, all of it depends on your creditworthiness recorded in your past transactions with the bank. So, that plays a critical role in your successful ventures with these institutions. But with time as a lot of data is being stored on cellphones and other devices, it can cause a whole lot of mess. But looking the grey side of the cloud, techies these days are using this plethora of data to strategically determine one's creditworthiness. For instance, we can see Friendly score, it is one fine app that analyses individual consumer behaviour and their social patterns to understand what worthiness he stands for that credit. It acts as a complementary data for banks or financial institutions to be more assured of their lending transactions. If your business account has good reviews on social media or has many complaints, either of them would affect their decisions of lending you funds. Such incentives by financial institutions are enough to tell us the breathtaking cut-throat analysis that companies are doing with Artificial Intelligence. Also, it speaks a lot of the future we are about to inhabit in terms of finance and technology.


4) BIG PLATFORM WITH LEAST CAPITAL: May sound ironical? Does that? Well, that's how the current market trend is falling into place. We have ample of instances around us at present where buyers and sellers are seen interacting with each other to facilitate their effective transaction which suits their budget bundle. For instance, OLA, OLX etc. These are not holding a product under their name but are a platform themselves where they facilitate the buying and selling of several commodities. This is the easiest way to do the business these days. All one has to invest in is an idea that goes viral virtually! In a similar way, we have other financial apps like Lending Club etc which bring on borrowers and investors from different geographical locations at one platform where they can bargain, compare the lending rates and hence choose one which suits their needs. Isn't that innovative? The best part in this is that they put nothing on the stake! They don't have to put any of their assets at risk, not invest in a massive capital, nor do they need to be involved individually losing out their productive time. All they do is have a margin of total profit for providing the platform to lenders and buyers!


5) LEAST FORGERY: Yes, forgery elimination is possible with the help of the recent advent of blockchain technology. It may sound impossible but it has been found extremely effective in that sense. The best thing about it is that it works on a decentralisation approach. The data stored or gathered through this is more scattered than gathered in one place. In the traditional system, the collection of data at one place with a central security system was the way! But with blockchain, things have changed drastically. Now, it works the other way round. It is due to this that various media houses are trying to use this technology to facilitate their transactions. Previously it was seen that they were full of forgery and fraudulent activities due to the active inclusion of middlemen. Also, there was zero sense of accountability and transparency. But with the passage of time, as blockchain has arrived, we see an elimination of almost all of these drawbacks. It can be made even more secure with the active use of contactless interface cards.


Forgery


Technology is not just a positive companion to the financial sector, rather it also has some of the negative points associated with finance which again become a limitation of technology against the transition approach of dealing with customers.


1) COMMUNICATION ABILITY: Technology, of course, brings out a lot to the forefront for having done a wise choice in terms of lending and buying securities. And with the emergence of artificial intelligence, it has made things really quick and extractable. But what about the individual face to face communication between the lender and the buyer? Can a virtual platform substitute it all? It brings to the surface another side of the technology. One cannot communicate their needs, the reasons for their data graph being weak, the issues on the ground and how they are different from the ones that are being projected virtually. For instance, when apps like FriendlyScore observe a customer's social network and analyses their creditworthiness accordingly, they chart out a graph of creditworthiness on that basis. But what if the online reviews are wrong, what if the data is too old and hasn’t been updated lately, what if one went through an unfortunate accident resulting in inactivity? Machines own zero answers to these questions and so does Artificial Intelligence. Hence, real communication is a must to have a genuine transaction done.


2) PERSONAL AND PROFESSIONAL: The fine line between professional and personal seems to be blurring with the AI boom coming in. Every user’s personal data can be seen as being monitored close enough to let them have a personal life. For instance, if we take an instance of insurance companies, they are keeping a track of every individual gymming pattern, health check-up patterns etc. Isn't it a breach of personal data? Or we can have another instance as stated above where we saw lending institutions closely monitoring the activities of their customer's including the social profiles of their friends! This is enough evidence to conclude that this is an overdose of unwanted technology trying to plunge in the daily lives of customers. This will make people lose out on a lot of opportunities in the finance sector as well as the finance sector will lose out on zillions of potential investors!


3) DATA SECURITY: The flip side of technology is that there's least data security in it. On one hand, it is a great platform providing authentic information about any kind of virus or hacking coming in. But on the other hand, it only eliminates such hackers to an utmost level but not completely. Yes, it can ensure the least effect by hackers but not absolute safety. Once the system is hacked, all the data in it is at great risk. Anything can be used in any manner whether it's the address, fingerprints, account details, photograph or anything. For instance, we can have a recent example of Yahoo.com, which is a famous platform among others like Gmail and Hotmail. Recently, Yahoo was hacked by anonymous hackers and it rang a red alarm for all its user's. Thou they recovered the account later on and saved all the data. But imagine, all the data were just a click away of exploitation! So, if viewed from that end, absolute dependence on technology is wrong when it comes to finance management.


4) LOSS OF JOBS: While tech automation introduction in the finance sector is working wonders for many, on the other hand, it's ill effects can be seen well on finance sector workers. Due to the automation of much of it, they are losing out on their high paid jobs. Everything is being done by bots or artificial intelligence analysis, than employing high payee employees. The advance technology is making the knowledge of these techies and bankers absolutely obsolete and useless. The traditional agents are being replaced with Robo-advisers. These robots may or may not be as accurate as human agents but they are substituting the human agents well for now. This is making the traditional agents look out for other jobs which are not suitable for their niche. Also, they are trying to do other courses which may land them a better job in terms of salary! So, a sudden change in tech and the emergence of blockchain and big data is making employability a big yet least talked about issue.


5) QUALITY OF OUTPUT: Technology especially the emerging one may seem and sound like one of the most minute observers of data details. But that nowhere keeps it from reducing the quality of output produced. For instance, in the year 2016, a severe case of a bank came into the light where a lot of data of debit cards was found missing. With big banks like that, one can't afford such mistakes yet it happened. The reason was some technical glitch which made it lose all the personal details of millions of customers! But is that affordable? Where would one go if such things are committed by a technical glitch? Therefore, a physical copy of all these data is much better and preferred than merely having a virtual copy. Because one glitch and it's all gone!


So, conclusively there are lots of pros and cons of technology emergence in the finance sector. Of course, technology is inevitable so one needs to extract the positive points out of it and try to eliminate the limitations of the same as far as possible.


Stay tuned for more such informative articles!

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