Unfolding Technological Insurgence in the Financial Industry
The traditional brick-and-mortar banking model was able to keep its dominant role within the financial structures. But now, this situation is challenged by technological advances.
We are witnessing how new technologies are dramatically transforming our economic systems and our society in general, every passing day. The inception of decentralized peer-to-peer technologies is enabling the possibility to initiate a new economy that is blurring the lines between consumers and manufacturers. And this technological shift is empowering a rapid transition to, what is called, “the economy of collaborative commons” – a digital space where users are sharing goods and services with each other at a low or near zilch marginal cost.
Until the last year, the traditional brick-and-mortar banking model was somehow still able to keep its dominant role within the financial structures. But now, this situation is challenged by technological advances. We are currently standing on the brink of a fourth industrial revolution, which will fundamentally alter the way we live, work, connect, and relate to each other. The possibilities of being unlocked by billions of people collectively connected via mobile devices, with processing power, storage capacities, and access to knowledge on fingertips, are infinite. While these tech innovations continue to multiply with breakthroughs in areas such as robotics, nanotechnology, machine learning, quantum computing, energy storage etc–the traditional financial instruments are becoming obsolete, redundant and inadequate, in the context of financial markets and institutions – to cater to an increasingly large and globally connected online market places with a high-frequency transaction that are accelerating fast every day.
Living in the twenty-first century, we still need the same banking services of the twentieth century, but the way we expect them to be delivered – has dramatically changed. The P2P finance embraces blockchain-based financial applications, cryptocurrencies and decentralized lending markets, crowdfunding, digital – wallets, assets and financial services. This advancement from e-finance to P2P finance, combined with the use of communication technologies, open-source computing methods, time-stamped ledgers, cryptography, and peer-to-peer distributed networks can now reach end-users directly and anonymously with disintermediated and secure access to payments and financial services without the need to depend on banks.
The financial services that were traditionally obtained under one roof with one point of control – are now accessible through decentralized platforms with limited or no human interaction – which was one of the prerequisites and founding pillars of the brick-and-mortar banking model. And these technologies are fragmenting and dismantling some of the main banking services including lending, deposits, payments, financial consultation services and investments.
P2P finance is a new form of banking, emerged as a consequence of the ongoing FinTech revolution that seized the opportunity offered by the dissatisfaction of banking customers – that is now offering financial products and services which are beyond the capacity of banks to replicate. And that is mostly due to the burden of their legacy infrastructures, a large number of detailed regulations and operational procedures providing the means to operate safely. Hence, banks find it difficult to innovate.
As a consequence, these new contingents of FinTechs are not only bagging revenues that are conventionally banking profits, but are also experimenting with new data-driven revenue streams for the financial sector. In doing so, it also introduces new challenges and risks for the legal system and risk management practices currently being followed.
If the current pace of technological innovation continues, as long as the connectivity will continue to increase and become more affordable – by 2025 most of the projected 8 billion people on Earth will be online. And by extending the online experience to places where people still today don’t have landline connections – you can envision a landscape where P2P finance will continue to disrupt the conventional financial industry. And with this disruption – the new methods of financial (dis)intermediaries and ubiquitous access to financial services will emerge; which will fill the gaps, create value and progressively substitute the traditional banking system. This major structural change mainly applies to products and services that can be easily standardized and automated, similar to the broad spectrum of services offered by traditional banks.
By Suman Valeecha
Suman is a business graduate and a marketer. Currently working in the financial sector, she is also a faculty member at one of the leading business schools in Karachi. She has been a TEDx speaker as well.
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