What are the biggest challenges faced today, by the Financial Services Industry for embracing the Digital Disruption?
- Growing Customer demand for advanced and improved services
- Movement for Fast money and service offerings
- Increasing demand for stringent Compliance for Data Security and Privacy
- Increase efficiency & productivity by reducing the overall cost
- Adoption of next-generation technologies for digital evolution
- Competition from nontraditional market players
- Risk Management
- Changing Regulatory environments
- Explore new revenue streams and target markets
- Cyber Security
- Economic Factors
- Mergers & Acquisitions
Now let me throw some highlights on the digital disruption within each vertical in the Financial Services Industry:
1. Banking Services: Globally, the banking service is radically transforming with a glimpse which emphasizes on innovation through “Finternet or Fintech” (Financial technologies) for facilitation of new banking models making it customer-centric. The banking in the future will set new standards for rethinking its vision and modus-Operandi of moving away from its traditional design function to the modern era of digitization of going completely paperless.
This is an era where every individual’s life is dominated by the device called “Mobile or Smart Phone ” which gave birth to the ‘Mobile Banking.’ Today, 86% of the population especially the millennials use mobile banking while other generations are not far beyond. The mobile banking will probably be a trend until the old guard banking system (from paper cheques to EMV chip cards) is completely sunset and replaced by wearables while mobile banking system continues to make in-roads globally. According to the forecast “Global mobile wallet market (Remote wallet & NFC) is expected to reach USD 3,142.17 billion by 2022, growing at a CAGR of 32% between 2017 and 2022”.
As E-commerce continues to proliferate in the region, mobile wallets have become one of the most preferred or trusted ways to pay online. In the US Paypal, the digital wallet is the widely used which opened to other regions as well having one of the largest user bases globally. In China, Alipay accounts for nearly 50% of the global transactions which is the largest E-commerce market. In Russia, Yandex search giant also powers a most popular the E-wallet with 22% of the Russian population are regularly using it to make their online payments.
In India Paytm has become the widely adopted E-wallet with 80% of its new users are on mobile. In the years to come, it will be amazing to see which standards win for in-store shopping. Whether it is the barcode or NFC/app-based payments and if Google Wallet or Apple/Andriod Pay will become truly globalized or will Yandex, Paytm, Tez, Alipay, and, others will gain popularity and become default mobile wallets having captured the market and user base. This rapid digitization demands the Banking services for early innovations and adoption of the IoT to cater to the growing needs & demands from the market expansion.
2. Insurance Services: “Insurance is a means of protection from financial loss. It is a form of risk management against the risk of a contingent, uncertain loss.” There are various types of Insurance such as Life, health, vehicle, liability, Pet, or other kinds of Insurance. According to the Insurance Information Institute, “The U.S. Insurance industry is the world’s largest insurance market where 6,118 companies, employing 2.5 million people, have net annual premiums of $1.1 trillion.”
However, with the evolution of IoT, the future of Insurance Industry will transform the risk management model in many new ways. The early adopters of the IoT technology have demonstrated how the technology has a compelling and unique value proposition established for advanced risk assessments within various insurance services. It also enables proactive engagements with the Policyholder in the loss prevention, defines processes, identifies functions and areas for biggest business impacts, data security, and ultimately monetizes the data from IoT.
Despite the fact that the Insurance companies pose a lot of challenges for their high-risk investment products such as Agriculture Insurance, Venture Capital Trusts, High-Risk Auto, Commercials – entering a new or emerging market, Events, Bonds, and, others. Through the adoption of the next-wave IoT technology/solution, The Insurance Industry can address and mitigate the risks that it faces through the exploitation of the policies by the Insurers. Thus the Insurance Services Industry is gargantuan spite of all the challenges it faces.
3. Investment Banking: “An investment bank is typically a private company that provides various financial-related and other services to individuals, corporations, and governments such as raising financial capital by underwriting or acting as the client’s agent in the issuance of securities”. The rise of the ubiquitous IoT Technology has revolutionized the way how the financial advisors, stock brokers, and other professionals embrace the IoT adoption for better decision-making capabilities or to mitigate the risks of investing in companies or stocks which might fail. With the growth of new markets and industries, companies like Amazon, Alibaba, Lazada, Flipkart, SpaceX, etc. are launching innovative and futuristic products/solutions/platforms.
Banks are willing to fund and invest heavily in companies or projects such that are futuristic such as flying cars, hyperloop, and, or in One Belt One Road Initiative (OBOR). It becomes critical for banks to determine where should they be investing. Given that the land is scarce or been used to its full capacity, the only possible expansion is through Air; which needs assessment for financial viability and determine the investments to be made either in the ‘Flying Car’ vs. the ‘OBOR or the Hyperloop’ initiatives.Hence, IoT plays an integral role in determining the risks involved in these investments and enables the banks in determining the right investment portfolios.
4. Stock Market: It is the place where the traders and stockbrokers buy and sell the shares of stocks, securities, and bonds. Although for some of the world’s richest and powerful, they are in a way determined by the valuation of how their company’s shares are performing on the Stock Exchange, while for others who invest or bet their savings in some of these companies future. IoT plays a vital role in providing the technology intelligence to its investors for betting on the right horse, at the right price, and at the right time. It enables and influences the factors that lead to the right buying and selling of the shares and stocks.
5. Foreign Exchange: The foreign exchange market or Forex is a currency market which is a global decentralised or Over the counter (OTC) market for trading including buying, selling, and exchanging currencies making it one of the largest market in the world. In the world of F1 race, speed is all that matters. Likewise, the Forex market runs into trillions of $$$s a day which has been evolving over the past few decades now.
Hence, in the forex market gear is a must for determining the fast movements of the money transactions across borders which today is constrained by the factor called ‘Time’ (day/night) and the weekends when the entire market goes to sleep globally. Hence, with the adoption of IoT technology/solution the Forex trading platforms can help address various factors such as Price movements, Trade flows, Time, Risk in the distribution of data, and others.
To summarise, in my opinion, Internet of Things will digitally disrupt the Financial Services Industry through its innovative and futuristic technologies which will be the biggest breakthrough for the global money market leading to an entirely ‘Cashless’ world.
This article is only an introduction or sneak peek highlighting the criticality of IoT for the Financial Services Industry. I will be addressing the individual services segments in an upcoming series.
