Investing

What Is Fintech? How AI Affects and Will Affect Financial Institutions?

Can you imagine life without a phone? 10 years ago, this might have been possible. However, for the past decade, technology has dramatically altered our daily lives. It is responsible for the creation and development of innovative tools and resources, which are accessible at our fingertips. Not just this, technology has also changed the majority of sectors. We are now able to transfer money instantly and purchase food, clothes, groceries, and more instantaneously. It has changed how we entertain ourselves, meet each other, and consume all types of media. 

So how did technology change the investment sector? Let’s find out! 

Fintech in our day to day routine

It is necessary to be realistic about how technology is developing quickly and making an impact in all aspects of our life, more specifically as a result of COVID-19.  

If you ask any young person, (a millennial or Generation Z) what is their preferred payment method, they will probably answer with mobile applications – basically virtual money. Thanks to the rapid advancement of technology and the pressure to evolve and adhere to the increased requirements from the COVID-19 pandemic, the global economy is moving fast from cash-based, to digital transactions. At least 64% of smartphone users have used mobile payment methods. For example, in the same way you are able to purchase your groceries, clothes, and other things online, you are also able to invest online or apply for loans etc. Everything is done in real time, rather than waiting for the response of the bank. 

Financial services are among the last sectors to be impacted by technology. Fintech is transforming the world of finance in a multitude of ways for consumers. Thanks to the development of Fintech, there are a range of financial services available at your fingertips without having to make a trip to the bank. 

Auto insurance companies are now offering “telematics-based” insurance where driving is tracked using data obtained from your mobile phone or a “black box” built into your vehicle. This data is the analysed to determine how much people pay for an insurance policy. In the future, insurance will be paid on a short-term basis, or even “pay as you go.”

Furthermore while FinTech is changing the systems of payments, investing, and other areas, as well as transforming the economy from cash based to digital, this new technology will also expand access to banking by lowering costs and breaking through barriers. There are many people outside the financial system, all of these things are incredibly time-consuming and unrealistic. In less developed nations banks are not as common and people have to travel to the location and wait in line to cash checks. 

What are the Benefits?

If you are wondering what the benefits of FinTech are, there numerous benefits of using FinTech, which makes the industry attractive to consumers and investors. These include:

  1. Cheaper deals: Fintech firms experience lower operating costs and no need to invest in physical infrastructure such as a branch network so that they can give customers a cheaper deal.
  2. Greater options: Consumers profit from a greater variety of goods and services as they can be accessed globally, no matter where they are located. 
  3. Individual approach: Fintech can quickly answer the consumers’ needs since they have higher access to information about them.
  4. Speed and convenience: Fintech products continue to be distributed online, and thus customers have simpler and quicker access to them.

In return, more established banks already possess online networks, a loyal customer base, reliable experience, and have acquired regulatory consent. This has subsequently enhanced competition in the financial services market, which is presumably to means a more competitive market for consumers.

Fintech in Wealth management

Until a decade ago, the wealth management industry was relatively unresponsive and unaffected by technology. The last few years since have seen increased enthusiasm and implementation in this regard, however FinTech technology in wealth management is still in its early stages. 

While financial markets have already seen tremendous changes, in the next 3-5 years, it is expected that technology will have an even greater impact. Investment management is expected to see the most impact of execution algorithms. (Refinitiv data research) 

Trading systems, analytics, and data products will not dramatically alter the course of a trading business. However, they can have an immediate impact on the trade desk’s execution quality and/or customer service. Upgrading the execution management system to gain access to advanced analytics and the latest algorithmic trading tools, for example, could show a return on investment in only a few weeks. 

Fintech brings a technology that is based on innovative algorithms and user-friendly interfaces, on a platform that offers clients 24/7 access to their investments from the comfort of their homes. The more that AI-driven algorithms are used, the smarter they become in predicting and reacting to market conditions. Such algorithms  or machine learning are also designed to ‘learn traders’ preferences in a similar way to which Google Maps suggests where you might want to visit when you get in the car.

Finally, Fintech is an evolving field that can develop our financial structures continuously. Some Fintech trends include the rise and popularity of Robo-advisors. Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services, with minimal human supervision. 

Their main goal is to provide better services to their customers at a lower cost than the banks. 

Most Robo-advisors use Nobel-prize-supported academic research to develop portfolios of exchange-traded funds, instead of investing in the old conventional way, where the fees were much higher. They typically follow an index fund, or another passive investment approach, based on modern portfolio theory research. This emphasizes the importance of your allocation in stocks, commodities or bonds at low cost without any trading fees.

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