It seems like the pace of technology and innovation is only moving faster. Look at all the new technologies entering the market today – artificial intelligence, self-driving cars, robotics, virtual reality – it seems like no industry can hide. This includes banking which was little changed for years. But that it beginning to change and this article will look at how technology is disrupting the way you borrow money.
It used to be that banks had all the power. While they are still the ones with the money, things are changing. Wall Street, the mecca of global finance, is undergoing tremendous upheaval and just about every major bank has announced layoffs recently.
What is happening? Why are banks laying off thousands of employees when the economy is growing? The answer is two-fold. First, part of the motivation is for profits as banks are laying off expensive managing directors in favor of low-paid analysts. The second is technology and the truth is that it is only beginning.
Nowhere to Hide
The truth is that technology is rapidly transforming dozens of industries. It’s not just manufacturing and entertainment, but banking is rapidly changing as well. In banking, the changes have included a combination of customer-facing and back office innovations.
On the customer-facing side, robo-advisers are increasingly being used to help individual investors decide the right time to buy and sell stocks. Another customer-facing financial technology is peer-to-peer lending. The rise of which has changed how millions of businesses and consumers get loans.
But it is not just the customer-facing disruption. While the internet provided the platform for peer-to-peer lending the same technologies also helped to streamline the application and underwriting processes – thus making it easier and cheaper to borrow money.
This disruption even extends to getting a reverse mortgage during retirement. With online training and counseling programs, automated payment and even using artificial intelligence to help with the loan approval and compliance processes.
All of this leads us to point where there is no place to hide in that technology is increasingly enabling every interaction you have with a bank or a financial services company. This will lead to many changes across the industry.
For example, compliance – basically record keeping on steroids – is reaching a point of full automation today. This has made it easier for the management of banks and finance companies to ensure transparency in process but even more so, it has freed up customer-facing employees to offer more value-added support.
Trends to Watch
While automation has had a massive impact on how you get a loan, the truth is that it is only getting started. One example of this is student loans, which have ballooned in recent years.
Not only are student loans expensive, but they are also complex as there is a need to ensure registration with a school as well as the need to manage the process for loan deferments. Several companies have entered the breach in this area and this has helped to peak investor interest in the area.
Besides tackling ways to improve the student loan process, technology is also being deployed to create marketplaces for money. This goes beyond peer-to-peer and could completely change how we access capital going forward.
In fact, these trends have gotten Wall Street’s attention. For example, often maligned Goldman Sachs has invested in several ‘fintech’ startups and have even launched their own internet only bank which offers direct loans – a first for the investment bank.
What the Future Looks Like
While it is too soon to declare an end to traditional banking, one can clearly see the impact of technology on the financial services sector. These include peer-to-peer lending, robo-advisers, student loans, and other developments.
The holy grail may well be tax reform and technology might hold the key to simplifying an overly complex and archaic tax system – or at a minimum changing how people pay for their taxes.
Ultimately, the future will probably be a combination of traditional players such as banks and credit card companies sometimes competing against and cooperating with technology companies. This will create an ecosystem approach to banking – one which is cheaper, more accessible, transparent, and portable for consumers young and old.