Expanding horizons of Fintech that unbundle new service offerings

The term Fintech, an abbreviated form for Financial Technology, comprises a vast range of products, technologies, and business models that are altering the financial services industry. The applications of Fintech include cashless payments, virtual currencies, crowdfunding platforms, Robo advisors, etc. Some of the real-time use cases through Fintech are, payments being made through Paytm, investing in stock markets, mutual funds through mobile applications like ET Money, redeeming loyalty/reward points. All these applications of Fintech are just the beginning, there are hundreds of companies that are trying to disrupt the banking and finance industries by shifting the way we pay and borrow money.

When we talk about new trends in the Fintech space, it includes things like artificial intelligence, peer-to-peer lending, big data, and blockchain. Let’s talk about each one of them one by one:

Artificial Intelligence in Financial Services

Artificial intelligence has four distinct features. First is that it will sense fluctuations in data patterns and then tune the models according to that by itself. Companies will not require data scientists to tune the models. Second is when data quality is not perfect, AI will help to create useful insights for businesses to make the decisions. The third distinct feature of AI is when data is coming in, companies do not need to store, process, and transform it before creating analytics. AI can just stream through the neural network and pick up the pattern, and help businesses to serve customers. While the final feature is handling unstructured data in places like image recognition or voice recognition. It’s different from traditional analytics in a way that you cannot use it for regulatory reporting because you cannot get the model out of the neural network and show it to the regulator.

Peer to Peer Lending (P2P Lending)

Peer to Peer lending is an online-based crowd-funding model where people invest their money for people who borrow. The online P2P lending platform helps to develop an agreement between the lender and the borrower. The agreement includes details like the interest rate at which money is borrowed; when the amount is payable to the lender, etc. Unlike a bank, here the lender can be an individual like you and me or a business or a small financial institution. In P2P lending, the lender has the benefit to get a higher rate of interest by lending their money as compared to savings accounts of banks. On the other hand, borrowers also get benefited because they get money at a mutually agreed rate of interest, and at times at a lower rate than with banks. In a bank, the interest rate is fixed and is the same for all the customers but in P2P lending interest rates depend on demand and supply.

Big Data

Big data is the segregation of all the data collected by electronic devices on a day to day basis. It includes both unstructured and structured data that can be administered with the help of analytical and algorithmic analysis to extract valuable information about the users. In the world of finance, this big data will help companies to understand consumer behavior, and then form strategies and policies that will help financial and banking institutions. According to data, the world creates close to 2.5 quintillion bytes of data, every day and this number is expected to grow even more in the future. Fraud detection, customer segmentation, personalized services, risk management, and better compliance capabilities are some of the major applications of big data in the fintech world.

Blockchain

Many experts compare the invention of blockchain to the invention of the internet. It has the potential to change the world in the same way that the internet did. To understand blockchain, we can compare it to a big ledger in the cloud (over the internet). Everything that businesses own is nothing but entries in a ledger. So, when someone sends money from one part of the world to another, it is nothing but an entry in the ledger of the person who sends it and the one who receives it. But the setback is, between the sender’s and receiver’s ledger there are a bunch of other ledgers, for example, there are a bunch of ledgers owned by banks, money-transferring institutions, regulators, insurance companies, etc. Each of these ledgers needs to be reconciled when a transaction is done and as we need to change so many entries, it causes delays and involves cost. So, when someone sends $100 from America to India, it takes 4-5 days to reach India and that too only $94-95 reaches the receiver. So, instead of this broken system consider a single universal ledger where all the participants including sender, receiver, banks, transferring institutions, regulators, insurance companies, etc., are all the participants of that big ledger in the cloud. Thus, instead of so many entries, you will require only one entry and that in real-time. Therefore, the concept of this single universal ledger is the heart of blockchain.

Conclusion

Fintech is changing the world of finance very rapidly and in a way that will completely change the modes in which we do banking and business. The number of physical bank branches is already reducing because of digital banking platforms and payment systems. Fintech will also provide a boost to the concept of financial inclusion. With economical and easy access to financial services, it is expected that huge stakeholders will be able to access financial services.

References:

1. “How AI is transforming the financial ecosystem” report which the World Economic Forum (WEF) published, in collaboration with Deloitte, in August 2018
2. Dr. Rajeshwari M Shettar, “An overview study on P2P lending”, Journal of Research in Business and Management, Volume 7 – Issue 2, (2019)
3. Article related to ‘How much data do we create every day’ on forbes.com
4. Ted Talk on ‘How blockchain can transform India’ by Mr. Jaspreet Bindra