EXPLAINED

Do you know about these technologies in Finance?


"There is nothing permanent except change." -Heraclitus.


Travelling back in time, we realize that change in the financial sector is not a new phenomenon. From the emergence of the Double Entry system to Blockchain technology, everything for once is an innovation.


The past decade, however, saw an exponential rise in innovations in the Financial sector. Consumer fintech adoption rates in Money transfer and payments have increased from 18% to 75% globally from 2015 to 2019. For Insurance, the adoption rate became sixfold, from 8% in 2015 to 48% in 2019. It suggests increasing awareness of technologies connected with the financial services sector on a global level.


Figure 1 - Source: Statista


As per Statista, The investment by private equity and venture capital in India's fintech sector has increased from $52.3 million in 2013 to $347.7 million in 2018 due to increased awareness. It is a clear sign of digitalization in day-to-day transactions by Indians because the volume of digital payments across India is 12,518.6 million in FY 2020, which was only 17.9 million in FY 2017.



Figure 2 - Source: Statista


Here are some of the new technologies in the Financial Architecture:

Technology has made the world a global village, thus transcending international boundaries. Now it is a piece of cake to raise funds from all over the world through crowdfunding platforms.


The total number of fintech start-ups in India is 2,712 as of 2020 across segments like payments, lending, personal finance management, Insurtech, blockchain, cryptocurrency, AI/machine learning, B2B fintech, banking tech, digital cards, Neo-banks, capital market tech, and trade finance.



Figure 3


Cryptocurrency has become a buzzword. According to CoinShares, Total investor flow to cryptocurrency has had a six-fold increase in 2020 from 2019. But what do you think about the future of cryptocurrency? Well, after 2020, nobody can predict the mysteries of the world. However, If the consumer-friendly interface complements the complex algorithms and if adequate regulations foster decentralization, cryptocurrency can be the country's future – not something impossible- isn't it?


What's more- Have you heard of Neo-Banks? If not, get surprised! Neo-Banks are banks with only an online presence and no physical counterpart. It is financial technology offering internet-only financial services. However, on a side note, In India, 100% digital banks are not allowed. In the market filled with traditional banks, non-banks, and fintech, will the market enable the space for Neo-Banks to grow?


And that's not all! Do you find it tedious to find financial advisors? Well, if yes, here's a real kicker for you! You can get investment advice, create your optimal portfolios, get them managed according to the economic conditions, and get tax-loss harvesting automatically done- all this with Robo-Advisor, which uses computer algorithms and minimizes the need for human intervention.


In addition to that, technology is also being used to drive innovative and efficient solutions in the Insurance sector. Last year, due to Kerala's floods, the claim verification process was the biggest problem faced by insurers. Reliance General Insurance decided to deploy a verification process using the video conversation feature. It resulted in the reduction of the claim verification time to just three days from two weeks earlier. Rakesh Jain, CEO of Reliance General Insurance, announced that the company is investing $10-12 million every year for technological advancement.1 Yet, the Share of Insurtech funding transactions in India was only 4% in the third quarter of 2020 compared to 72% in the USA. According to the McKinsey report, by 2030, an individual's risk score can be calculated by AI considering daily activities with IoT devices that he or she might be wearing.2 It can help to save millions for the Insurance companies by introducing better risk profiling mechanisms.


Figure 4 - Source: Statista


But with greater technology comes greater need for regulations. With massive automation, the magnitude of data increases manifold. Technology is again to the rescue here with Regtech, which uses artificial intelligence to automate compliance.