Financial innovation is a general term used to refer to advances in financial technologies and systems. Within the financial services industry, it allows consumers to have more influence and control over their financial well-being and gives financial institutions the ability to improve the products and services they offer to customers. Randall Castillo Ortega, a financial expert and the founder of SME backer RACO Investment, provides insight into innovation now occurring in the financial sector.
The continuous improvement of financial instruments and products is beneficial for both consumers and companies and financial institutions. Through better technologies, financial institutions can improve risk management when making credit decisions or provide consumers with investment advice backed by market data that is updated in real-time.
Companies with stronger financial technologies (FinTech) can manage their corporate finances in a more efficient and accurate way and also use payment systems with integrated fraud protection services to ensure secure transactions. “Consumers can have more control over their finances and experience better ways to manage them by being able to access superior financial technologies,” explains Castillo.
FinTech companies – which have led the influx in this type of innovation – use their experience in developing application programming interfaces (or APIs) to create new tools. This allows consumers, companies and financial institutions can take advantage of them.
It is the factors of insufficiency or inefficiency in the financial market that give impetus to financial innovation. These are the problems that new technology hopes to solve. Thus, for example, in the case of behavioral finance – the study of how investors behave and their subsequent effects on the market – they have exposed human bias in any investment, which has resulted in an increase in investors using Big Data to make important decisions.
AI- and machine learning-powered technologies rely on Big Data and natural language processing to automate processes and eliminate such bias. As a result, over the past few years, there have been countless improvements in financial technologies and systems.
Electronic banks have been created that already allow customers to access their complete banking services from a mobile device at any time they require it and better control their money. In order to fill a gap in the financial services market, it has been necessary to innovate beyond existing services for consumers and create e-banking that can be refined with relevant financial data.
Online lenders are modernizing lending systems by using AI and machine learning technologies, which automate and optimize the complicated processes of conventional lending platforms. Aimed at mitigating risks, financial innovation in APIs and natural language processing enables the immediate calculation of interest rates, the provision of more personalized loan options, and the more accurate identification of fraudulent borrowers.
To make accounting easier for small business owners, cloud-based accounting software platforms have been designed. Some of the improved features are balance checking, sending invoices, and tracking business expenses. They are solutions that are better suited to today’s accounting needs and are used on mobile devices and tablets.
Companies that are looking to provide a more satisfying user experience while at the same time aiming to decrease fraud and fees typically associated with online payments and credit cards can turn to innovative payment solutions. “With the implementation of the right payment system, business owners can focus on customers first while staying on top of any potential fraud risks,” adds Castillo.
Financial innovation drives economic growth within any industry because the financial economy has an immense impact on businesses and consumers. As the economy becomes more global, it is possible to see innovations in international finance that impact economies around the world.
As more types of financial data become available, there will be more FinTech companies and financial institutions offering consumers more efficient ways to achieve their financial well-being.