Fintech, crowdfunding, blockchain, and digital wallets, are names that you’ve probably heard or read about. Some of these trends in financial innovation already have time, and others are more recent.
However, if you want to dedicate yourself to business, you must know them, to be up to date and make the most of them. In this article, we will tell you a little more about them and their advantages. Keep reading.
What are we talking about when we talk about financial innovation?
Practically, since the trade was born, man has looked for a way to streamline transactions, increase profitability and strengthen security. These are the three main variables that motivate financial innovation, now and always.
For this reason, mechanisms, processes and strategies are constantly being proposed in the finance sector to respond to the aforementioned needs. And, without a doubt, the arrival of new technologies has meant a real revolution in this context.
Different products and services are offered every day, and even new actors appear, favoring the exchange and making it faster to move in the dynamic world of finance. In this regard, it is said that innovations can arise in relation to four essential components of the system, which are:
· The markets
· The products
· The services
· The processes
Financial innovation trends you should know about
Some of the trends in financial innovation that we are going to learn below have marked a before and after so far this century.
1. Digital banking
In the not-too-distant past, people had to go to the bank to withdraw cash, open an account, withdraw a checkbook, or even make a transfer. Nowadays, with digital banking, everything is easier and faster.
This, which has been one of the main financial innovations of our time, points to further radicalization, in the sense that even the gradual disappearance of physical banks is expected and maybe the cash. In fact, there are already fully digital entities.
Moreover, according to the figures from Statista, two out of three people prefer to use online banking. And it is that this has meant not only an improvement of the services, more and more efficient and faster, but other services that did not exist before have also appeared, such as cardless payment systems.
For those who want to venture into business, and create entrepreneurship, it is important to know everything that banks can offer in terms of digital services, intending to make a choice according to their needs and be able to grow.
2. Electronic wallets
Among the trends of financial innovation, the so-called electronic wallets or virtual wallets have also emerged, which provide some similar services to banks, along with several others.
These systems, in addition, have the advantage of being less cumbersome than banks. However, that does not mean that they are not safe or that they do not comply with the laws. On the contrary, they are very strict about it.
It is interesting for entrepreneurs to know that they can count on this type of financial innovation to receive money or pay partners and suppliers located in other countries.
3. Blockchain and smart contracts
Blockchain can be defined in a simple way as an unalterable mechanism, which is shared by a group of users involved in a transaction, thanks to which the registration and monitoring of said operation is facilitated.
In the area of finance, this technology has found several applications. One of them is the so-called smart contracts, which constitute a set of rules stored in said blockchain, and which are executed automatically.
This allows to automate, streamline and give greater security to contractual relations between people or companies, without misunderstandings, without the possibility of falsifications or alterations and without the intervention of third parties.
Smart contracts can be a great solution for organizations that carry out a large number of operations, that involve interacting and establishing agreements with others, that are in various parts of the world, and also for those that aspire to grow.
Another of the applications or uses of blockchains is the so-called cryptocurrencies, a type of asset that is becoming increasingly attractive, not only as a form of payment but also as an investment.
As is well known, currencies are usually backed by the economy of the countries that issue them. Instead, cryptocurrencies do not have an issuing entity, nor are they regulated by anyone, except for the market demand and supply. It is claimed that these digital assets have lower volatility as well as greater security, given the use of the blockchain.
Although at the moment not everyone knows them, so they are not universally accepted, they are considered to be a good investment, since some such as Bitcoin have been greatly revalued.
Some services are no longer exclusive to banks but can be provided by other types of organizations. This is the case of fintech, a term used to refer to companies in the financial sector that rely heavily on technology, to automate and improve processes.
Fintechs can be intermediaries in relation to:
* Payments and money transfers
* Loans and credits
* Purchases and sales of goods and properties
* Financial advice
Another trend in financial innovation that has boomed in recent years is the so-called crowdfunding, which has helped to break the traditional models regarding the granting of credits and financing, this word literally means fundraising.
Although they can be used for charity and solidarity campaigns, they constitute a mechanism for financing productive and creative activities.
7. Big data and AI
Despite its uses and applications are not only related to the financial sector, we cannot fail to mention two of the most important innovations of recent years: big data and AI (artificial intelligence).
Regarding the former, it is believed that once the data has been collected and analyzed through sufficiently powerful technologies, more information on potential clients and consumers will be at hand, to provide targeted services.
Meanwhile, the financial industry has already begun to implement the use of AI to improve various processes, such as:
* Fraud and crime prevention
* Risk analysis
* Profitability analysis
* Granting of credits
And other very promising possibilities are foreseen in the not-too-distant future, such as automated financial advisors.
8. Other financial innovation trends
There are other developments, directly or indirectly linked to the financial industry, which are expected to grow in the coming years; among these, it is worth mentioning:
· 5G Technology: in some countries, it is still in its infancy; but improvements are expected, as well as the fact that these will translate into growth in the financial sector.
· Natural language processing (PLN): this development, linked to AI, may have applicability in the financial field to process requests and claims, speeding up response times.
· Cybersecurity systems: voice-enabled payments, and use of iris recognition, among others.
How to take advantage of financial innovation?
Today, more than ever, knowledge is power. Therefore, to take advantage of these great financial innovations, it is necessary to know both their operation and the benefits and advantages that they can bring to your business, to keep growing.
Of course, it is also important, within your strategy, to understand what are the aspects that you should promote in your organization and which technologies can favor you. The idea is not to incorporate them just for the sake of it, because if you don’t need some of these innovations, they would end up being an expense.
And finally, remember that while it may involve technology, innovation in finance is about doing things in a different way from the usual, to get the best possible results.