Finance as we know it will be changed. The legacy financial system that has served the global markets till now is indeed in need of transformation.
THE DECLINE OF PUSH AND THE RISE OF PULL
The push model of banking and other financial services have created strange equilibriums, where customers are supposedly required to be satisfied with gross inefficiencies, indecent margins and poor service. Mobile banking and financial services have given customers a taste of what they can and should ask for. Banks and financial institutions are pushed by technology startups to better alternative solutions that are being offered.
RISE OF FINANCIAL TECHNOLOGY INNOVATION
Bitcoin, blockchains, global penetration, cheaper data bandwidth and a slew of technology innovations are changing possibilities. Technology start-ups are no longer sniffed upon by the Big Banks and SIFI’s. Quite the reverse. Large banks and financial institutions are pressured to stem the tide of withering market share; especially with a prolonged low-interest rate environment pushing down yields. Free and easy interest margins, bank fees, finance charges are increasingly harder to use with customers and consumers now used to receiving freebies from the alternatives.
EXCESSIVE REGULATORY & COMPLIANCE COSTS
Financial institutions are under tremendous scrutiny. The continuing flux of regulations and compliance requirements (Dodd-Frank, Basel III, KYC, AML, Sanctions, etc..) are soaking up much of many institutions precious resources, in the midst of a low margin environment where spreads are getting thinner and thinner. Each institution is left to its own wits to deal with the plethora of complex and unnerving requirements; and much more is on the way.
In the midst of all these, we have a global anti-establishment movement, and a growing display of lack of trust at all levels: of governments, financial institutions, global companies. The creation of Bitcoin and its adoption success is one such illustration. The continuing buzz of activities around FinTech innovations, especially following Bitcoin success and the promises of its innovative distributed ledger (blockchain) idea are adding to the speed of change in the shake-up of Financial Markets.
TAPPING THE UNTAPPED MARKETS
Many of the lower reaches of society, including those in developed countries can hardly participate. They have real and pressing needs, but continue to be unserved or under-served by banks and financial markets. Yet many of these have always had many of their needs served, albeit using alternate methods (bartering, etc.); though these have not been accounted for in the way we usually do. Things will change when new innovative financial products, which offer easier access, a much lower transaction cost, can be conveniently used by these. These are untapped markets, and the possibilities and potentials are high.
finRenaissance is a community inspired movement to bring solutions to these and many other changes we are seeing in the marketplace. We have some exciting work on these, and are looking forward to sharing with you more very soon.
Steven Lee, Co-Founder, finRenaissance