3 ways technology is revolutionizing financial services
If you haven’t been introduced yet, now is a great time to get acquainted with financial technology, better known as fintech.
FinTech describes new technology to improve and automate the delivery of financial services, from the way you pay, manage your money and get a loan, through investing in stocks and bonds, financing participatory, data collection, etc.
And while technology has long disrupted financial services (think the humble ATM), it is currently an industry on fire, accelerated by a pandemic that has made us all reluctant to touch physical money and make money. to venture out of our homes to do financial transactions.
“In general, the pandemic has sped up the process of online financial transactions,” notes Itay Goldstein, professor of finance and economics at the Wharton School. “With people staying at home, online banking has increased along with other online transactions. This probably sped up the process which would otherwise take longer to develop. These are changes that will persist beyond the pandemic. “
With this, we give you 3 tech trends that may affect your financial future.
Invest. The possibility of investing in the stock market has never been so accessible. Companies like Robinhood have burst onto the fintech scene, offering commission-free transactions in stocks and other securities through mobile apps. The investment history of the pandemic has been GameStop, which looked like a hot investment and prompted many new investors to jump into the stock through their Robinhood apps, only to lose money when the GameStop stock price fell.
In general, we see this “combination of technology and increased interest from small investors who have money to invest and more free time during the pandemic,” says Goldstein. “It brings fierce debate to the surface. On the one hand, it brings increased participation in the stock market, which is a goal that has always been deemed important. On the other hand, we’ve all seen the kind of trading frenzy that this can generate. I think there will be further consideration of the costs and benefits of such easy access, and maybe some will try to throw sand in the wheels so that the markets do not become not uncontrollable.
By the way, Goldstein adds, the cryptocurrency bitcoin “continues to run wild.” The digital form of currency has captured the interest of high school students around the world. People can choose to pay for things using their bitcoin and / or they can invest in bitcoin currency like they would invest in the stock market or gold, and get a return on that investment as the price in US dollars per bitcoin rises.
“Given general asset price inflation and concerns about increased money creation by central banks, Bitcoin has attracted many investors believing it to be an attractive store of value and ‘an opportunity to generate returns,’ Goldstein said. Prices have skyrocketed for a while, but more recently have fallen after former Federal Reserve Chief Janet Yellen’s negative remarks about Bitcoin’s ineffectiveness as a currency for transactions. “Overall, I expect volatility to continue over the next few months,” notes Goldstein. “There is a lot of speculation about what Bitcoin can and cannot do and what is the ultimate source of value. This leads to volatility.
“Ultimately, we want to produce an app that will help you think through your borrowing decisions.” – David Musto, professor of finance at Wharton
There is an application for that. According to the Mobile Finance Report 2020, a global benchmark for banking, payment and investment applications, COVID-19 “has significantly accelerated the already exponential growth of fintech applications in 2020”. That is, when it comes to managing your finances, chances are there is an app for it – in fact, several. And it really changes the way you interact with money. Venture capital firms that finance start-ups are pumping money into young fintech companies, many of which promise to make financial services simpler and more accessible to everyone. And even the companies you don’t think of as providing financial services are trying to capitalize on the surge in digital currency services caused by the pandemic. For example, Walmart recently announced its entry into the banking industry with Ribbit Capital.
“A lot of the financial services that seemed stable when I was young, like banking, insurance, lending and money management, are changing completely,” observes David Musto, professor of finance at Wharton and director of the faculty of Stevens Center for Financial Innovation in Wharton. “We have moved to a world where you can reach the people of Venmo without ever touching the change.”
The explosion of financial services applications prompted the Stevens Center to focus on using technology to improve a personal finance problem, removing a student loan pay for college. “Ultimately, we want to produce an app that will help you think through your borrowing decisions,” says Musto, whose colleague Nikolai Russonov, along with his MBA students, also teaches an “Essentials of Personal Finance” course for high school students during this spring Wharton Pre-Baccalaureate Program. “There’s a whole complicated thing you get into when you take out a student loan. It might be a good idea to do this to fund your graduate studies, but you need to embark on a loan with your eyes open and understand the consequences. “
For an overview of fintech startups coming onto the global stage, check out this blog by Wharton Fintech, a student-led fintech initiative that takes the pulse of the industry.
Big data decision making. With technology comes data, and more specifically, data analysis and decision making. In many ways, the ease of data collection through technology is transforming the financial landscape – and your life – in profound ways.
Musto cites two key examples: granting loans and insuring new drivers. “Typically, you would have all three credit bureaus and a credit report on you at each of those bureaus that would help you determine your creditworthiness for lending money,” says Musto. “Now lenders are using big data [pulled from different sources], and I don’t necessarily know what sources they’ll go to when they make the decision to lend me money. The data, he adds, also influences the rates you’ll pay for insurance as a new driver. “Many insurers these days will track your driving in different ways, potentially putting a device in your car or emitting a signal or tracking your phone,” he says. “That’s a lot more information than an insurer ever had about my driving when I got my first car. Now they are watching and can see if you are being reckless. The advantage is that safe driving means better prices.
And with data comes great responsibility, as we’ve seen when private data is breached by hackers. A lot of energy is spent on data protection and privacy, from both large institutions and small startups. For an interesting insight into innovation, check out Shane Curran, a 20-year-old Irishman who started his data privacy business while still attending high school in Silicon Valley, Calif., A few years ago. His company Evervault helps software developers keep their clients’ data confidential without hiring a lawyer. The company raised $ 16 million in funding in 2020.
The explosive growth of fintech puts money and all of its related services at your fingertips. An important point to remember, experts say, is to appreciate accessibility, do your research, and proceed with caution.
Do you use an app to invest in the stock market? What do you think about the risks and rewards of this simplified approach to placing trades? Share your story in the comments section of this article.
As technology changes the way we manage finances, it also often makes cash a thing of the past. Do you think we should be a cashless society or do too many people, especially those outside the mainstream financial system, depend on cash to survive? What is your position on the cash debate? See the Related Stories tab for an article on this topic.
What is your favorite fintech app and why?