FinTech is a buzzword and you are not alone to wonder what it is.
FinTech or Financial Technologies is the use of technology in the financial sector which is changing the way we were using the financial services earlier.
Integration of technologies like artificial intelligence, machine learning, real-time processing, and data analytics has changed the way financial services nowadays are conceived by the providers and consumed by consumers. All these developments have disrupted the traditional business models of different financial services like banking, fund transfers, fund raising, investment and asset managementetc. It is not that technology has not disrupted the other industries earlier but this disruption in financial services has opened up whole new capabilities and opportunities which were unthinkable some time back.
Many of you have perhaps not gone to your bank branch for ages because you are managing your account online and through mobile. You already have Paytm or any other digital lockers for fund transfers other than the net banking facilities provided by your bank. Even international fund transfer is much easy now. Even if banking channels are unavailable, you have PayPal and Square.
Another innovation has happened in the way funds are raised. With the advent of P2P lending and even the raising of equity, parties are getting connected through online platforms cutting transaction costs and need of middlemen. It has opened up new vistas: a new set of credit assessment tools and legal framework to safeguard the interests of both the parties.
One of the benefits of FinTech revolution is unbundling of the financial services which has given the consumer much more freeness to choose. You need not to rely on your old investment advisor now. There are many new-age companies which are providing you a whole new range of assessment tools and ways to facilitate investment abundance of data and computation capabilities have changed the way, investment decisions are being taken by individuals. Adoption of these whole new algorithm-based tools which may now decide the best investment alternative for you. You may have heard the names like Scriptbox, FundsIndia, Trendlyne, Streak, and Smallcase. An HDFGC Securities report says that a new age broker, Zerodha which is heavily relying on technology to serve its customers, now has 15% of the volume market share in equity broking in India.
How is Technology impacting Physical Currency?
Technology has helped to transactions go cashless. Not only India, but more and more nations are striving to use less physical cash. More than this, FinTech revolution has also opened new frontier- digital currencies. Perhaps first thought by Friedrich Hayek, a Nobel Prize-winning economist, in his 1976 book, ‘Denationalization of Money’. He favored the establishment of private money which is competitively issued.
With the arrival of digital currencies like Bitcoin, Hayek’s vision is on its path to becoming a reality. Not only traditionally, how the currency has been perceived is being challenged and even Governments and central banks are feeling threatened. Bitcoin is not a official legal tender, but in countries like USA, Bitcoin is legal to use and is subject to the same taxes and reporting requirements as any other currency, but various other countries like India are not comfortable in adopting Virtual Currency yet.
Blockchain, which is underlying technology behind Bitcoin and many other crypto currencies have the possibility to be used in many other businesses. It works on the open ledger which is continuously updating on the occurrence of a transaction (block) in real-time as multiple parties can access the ledger without the need of a central authority or a third-party intermediary. The chain cannot be changed after the acknowledgement of the transaction to the chain by the concerned parties. Not only in financial services, companies have been trying to use this technology to address supply chain issues in other areas like manufacturing, retail and to deliver better services in health care, energy, telecommunication and in many other industries.
Use of technology and data can get you better products and services in a whole new way and brings more job opportunities to students who are comfortable in domain knowledge, technology, and data handling.
Prof. Girish Jain
Associate Professor & Area Head-Finance, BIMTECH