How Tech Companies are Revolutionizing the Finance Industry
In the last millenium, the most common way for a start-up company to get the capital that it needed was to request a loan from a financial institution. However, that all changed in 2008 when the banking crisis occurred. As banks around the country failed, start-up finance companies began to emerge and tech companies saw the need for a change in the financial system. Since then, tech companies have began to slowly revolutionize how people think about their money and handle it. The following moves have allowed tech companies to change the way that people, companies and banks do business.
In today’s age, consumers can buy and sell stocks and bonds on their cell phones. Most banks offer customers access to their financial accounts through a mobile-based app. Having constant connection and information from the financial services industry means that people have more opportunities to engage with their financial accounts. This addition is perfect as individuals from the millenial generation comprise a greater percentage of the finance industry customers. These customers prefer to have more direct control over their finances.
Providing Faster Access
Tech companies have developed a number of methods in ensuring that consumers have instant access to their data at any time and in any location. Additionally, these solutions allow consumers to make faster transactions and confirm financial data with lenders more quickly than in times before.
Focusing on the Social Component
Social media continues to be an integral part of people’s lives and a component of how companies do business. Companies offer incentives and communication outlets that allow consumers to interact with them on a more personal level, further solidifying personal relationships between the consumer and the business. Additionally, consumers can easily show their appreciation for financial service companies and quickly refer friends and family to them.
Some tech companies have also started to use social media information as part of their risk assessment regarding consumers. Some global banks allow people to set up a limited account with merely a social media profile. Other financial institutions use a social media profile as one ingredient in determining whether to lend funds.
Offering Cheaper Alternatives
For years, individual borrowers were plagued with high interest rates. Banks had to make money and pay for their expensive overhead. However, tech companies have established methods to provide funds between lenders and investors without the need for a brick and mortar location. This has allowed new sources of capital to form, often with better interest rates and terms than financial institutions can provide.
People lead extremely busy lives and often travel to other locations where they may not have access to a brick and mortar location. By providing automated services, businesses allow consumers to save, pay bills, purchase or invest funds on an automated cycle. This helps consumers save time as they do not have to repeat the same tasks time and time again. It also helps businesses and financial institutions develop a certain level of predictability regarding the consumers’ purchases and transactions.
Giving Businesses Faster Data
Tech companies have a pivotal role in how businesses conduct themselves. They offer retailers and other businesses faster information that they can use to target sales. With the right technology, businesses can track inventory in real time and quickly determine what marketing strategies are or are not working. Having this information immediately at their disposal can allow businesses to invest their funds where they are most likely to see the biggest return.
Providing Small Funds from Various Sources
Through peer to peer lending and crowdfunding efforts, banks are getting cut out of the picture. Although the banking industry is no longer facing the crisis of 2008, it has learned its lessons in making risky investments. Even though funds are available to lend, more stringent banking regulations and standards mean that banks are less likely to lend. However, peer to peer lending allows private individuals to borrow and lend funds based on agreed-upon terms and conditions, effectively cutting out the middle man. Additionally, crowdfunding allows small funds to be gathered together to help finance start-up companies and other ventures.
The financial trend of today is to provide customized options for consumers so that they all have a unique experience. Tech companies realize that consumers of financial products are not one-size-fits all. By providing consumers with options that allow them to see how they can combine services across various platforms, the consumers can make important decisions regarding this information rather than being sold the same financial product as everyone else. Tech companies make it easier for consumers to compare prices and costs across the board so that they can make more informed lending and investment decisions.
Being More Transparent
Tech companies have developed innovative solutions to help consumers make more informed decisions by making the financial sector more transparent. Silicone Valley companies realize that customers need greater transparency from their financial services providers and have sought to provide this to them. Having clearer terms and plain English conversations allow more transactions to occur between borrowers and lenders. Consumers can now use special software or website tools to upload financial information and receive offers from potential lenders regarding loans and mortgages. Being able to compare rates and conditions on a single platform provides greater clarity for these consumers.
Determining Risk Assessment
Tech companies have also developed the means to determine a person’s comfort level with risk when making investment decisions. Software can be utilized that determines a person’s tolerance level regarding risk and then generates a mixture of stocks, bonds, mutual funds and other assets that the individual should invest in based on this information.
Inventing New Currency
Tech companies continue to think outside the box, causing them to look for solutions to existing problems, such as how to expand business and personal connections across the globe without incurring additional fees to do it. One way that tech companies have achieved this goal is by inventing their own currency. For example, the Bitcoin provides a more secure and easier alternative to using funds originating from banks. Due to the fact that there is no central authority necessary to the operation, there are not fees that must be paid to intermediaries like there are in the traditional banking industry.