Introduction to How the Finance Industry is Changing
The finance sector has experienced great changes in the recent past. These changes are mainly due to changes in financial regulations and technology.
The changes in the finance sector have proven to be disruptive especially since this is a sector that has always been based on static business models. Here are some of the ways that the finance sector is changing.
1.Automation and commoditization of high-margin processes
Through technological skills, manual procedures in the finance sector are being automated to reach more people. Banking services were mostly associated with the elite although that has changed with time.
Advisors have so far automated a complete suite of available wealth management services. Such services include advice on investment, asset allocation, and complex tax minimization strategies.
This has resulted in great changes in banking as young people are using banking services even when they may not have a consistent flow of income.
2.Partnering with incumbents in the sector
The smart investors in this sector have chosen to compete with incumbents by bringing them closer as partners. They mainly work together in areas where they are not in a suitable position to compete.
The incumbents mainly agree on such partnerships having in mind that new entries into the market mainly come with new ideas and innovations to conquer.
These collaborations have been on a high rise and they help financial institutions to meet the needs of their customers in a better and more efficient way.
3.Strategic use of data
For institutions in the finance sector, customer data plays an important role in decision making. Bankers rely on a customer’s credit score to decide on how and who to lend.
On the other hand, insurers review your driving record or may require you to take a health check before they give you a policy.
Innovators have strived to create a connection between devices and their users and this brings about new streams of the firm, modern data to improve decision-making processes in the financial sector.
Through many different websites, customers are analyzed and their social networking patterns give additional data that can offer them an insight into features of the best lending software.
The data gathered is used by financial institutions and other lenders to decide on whether to issue credit. The social patterns include the review of a borrower’s business.
If your business has a good number of online followers and likes as well as proper interaction with customers, then you stand a chance to get credit.
4.Products and services that are highly focused
In the past, innovators put so much work into replicating the entire bank. This led to business models that were appealing to selected groups of people.
The current innovators have immersed their efforts in the areas that frustrate the customers most and those that bring finance incumbents the most profit. Focusing on this intersection allows them to take away what is most valuable for incumbents.
When it comes to remittance, for instance, banks have for a long time been charging so highly for money transfers across borders.
To add to that, customers transacting across borders had one major complaint that customer service from their banks was poor and the transfer of money took long.
An innovative company has so far offered banks and customers a solution that uses an innovative bank’s accounts network.
The solution also uses a web interface that is user-friendly to ensure affordable, faster and easier money transfer across borders. The services of this company have enabled it to grow in a big way.
5.Platform based and capital-light
In the finance sector, some companies are making a lot of money by maintaining flat costs. This is a trait that has attracted the interest of financial services innovators.
For lending companies, such as Lending Club, there are a lot of opportunities to grow through issuing loans. Their growth over recent years has been impressive.
The lenders can issue huge loans to borrowers without putting their capital at risk. This is done through an intense review of customers before lending.
These lending companies offer a platform where borrowers that are in search of good rates meet with individual and corporate lenders.
Like any other sector, the finance sector has greatly evolved. The changes being witnessed in the sector are immense because this was a very rigid sector in previous years.