The finance service industry provides services to the businesses and individuals relating to the management of money such as banks, insurance companies, stock brokerages and investment funds. The term “financial services” was first coined in the Gramm-Leach-Billey Act in the 1990s which contributed to the union of different companies functioning in the U.S. financial services industry.
Types of Financial Services:
The two common approaches in the industry include the acquisition of firms and the creation of a brokerage division. In the first approach, the bank acquires an investment bank or insurance company and maintain the original products to expand its resources. In the other approach, bank relies on its own insurance or brokerage division and target its own existing customers.
Commercial banking services include the safety of money, easy transactions, credit and debit card facility, ATM transactions and providing loans while investment banks provide capital market services, brokerage services, and private banking services. Foreign exchange services are usually provided by foreign exchange brokers. The services include currency exchange and remittance. Investment management and custody services are some examples of investment services.
Major Financial Services Companies:
The financial services companies mainly target specialization and globalization. Berkshire Hathaway (BRK.A), was initially a union of some insurance companies which later turned into a multinational organization owning companies in the industries like real estate, transportation, jewellery, and furniture. Under the direction of Warren Buffet, a famous investor, Berkshire Hathaway has succeeded financially with its acquired companies. American Express (AE) is a multinational financial services company that was founded in 1850. American Express is commonly known for its credit card services. Being one of the oldest financial services company in America, American Express has managed well to maintain their standards in the ever-growing competition from the fresher firms.
Wells Fargo is the leading bank in the United States and active in more than 30 countries. The company famously bought Wachovia Bank in 2008 beating Citigroup, the arch-rival of Wells Fargo. E-Trade Financial Corporation (ETFC) was the first company to provide online discount brokerage services. The company has expanded its business in the presence of already existing business giants. With the advancement in technology, financial services have also faced the waves of transition.
The Arrival of Blockchain:
The arrival of new technologies, like blockchain, has completely transformed the whole idea of financial services. Let’s take the example of alternative banking first. Real-time balances, biometric security, and simplified money transfers were not possible before the emergence of Fintech companies. The technology has provided the opportunity to the small startups to compete with big companies which will eventually improve the user experience. Alternative finance is another example of the financial revolution triggered by Fintech companies. Alternative banking is speeding up the time-consuming processes like approval of applications and long repayment schedules. Open banking allows the user to share its data with selected companies to get improved financial services.
Blockchain has eliminated the role of a central authority to make transactions happen without the limitations of banks, governments, and borders. The centralized systems were more vulnerable to frauds and scams while blockchain systems are transparent and faster than the conventional ones. The advent of smartphones has made it possible for the users to access financial services provided by the banks from their smartphone apps. This has also called for interactive and real-time banking services. Today, people don’t have to visit the banks and wait for their turn to get facilitated. Another important aspect of mobile phone banking is the emergence of online payment apps. These apps allow users to make fund transfers, investments and do online shopping from their couch.
Artificial Intelligence is making the Difference:
Companies have introduced chatbots for consumer service that use artificial intelligence techniques to learn from human interactions. These bots can easily handle customer queries and even provide investment advice. These chatbots are raising the standards of consumer satisfaction. The use of artificial intelligence is not just limited to the chatbots as it is used by many companies to detect frauds in collaboration with anti-money laundering departments. This process also includes the use of human efforts along with the software. The software identifies the possible fraudulent transactions and sends an alert to the investigation department. The investigation department uses human intelligence to figure out whether the threat was real or not. The machine learning algorithms can use previous records to generate an alert of a possible attack even before their execution.
The Dream of a Global Marketplace:
In Digital Championship Cyprus 2016–2017, a Swiss Fintech company won the Fintech Company of the Year award for its contribution to the dream of creating a global marketplace on the blockchain. The company is hopeful of building a global marketplace for the trading of all sorts of financial assets. The CEO of Lykke Cyprus Dr. Demetrios Zamboglou, who is also the Chief Business Development Officer, is working hard to make the dream of a global marketplace a reality. For this, his first target is to build trust, safety and transparency for all the stakeholders of the financial market which will reduce transaction costs because of the peer to peer linking. The use of blockchain technology for transactions will reduce the risk of frauds and misuse of the service.
A Look into the Future:
The analysis of recent trends in the industry suggests that Fintech companies will continue to grow in the near future. Fintech companies have raised the standards of consumer satisfaction and user experience. Traditional banking is not efficient enough to meet the needs of today’s consumers. Unfortunately, the financial freedom has its disadvantages too. It allows criminals to transfer black money without the risk of being tracked by the authorities. This has raised some serious concerns about the security of these transactions along with the vulnerabilities of getting hacked. Despite the deficiencies, progressive people will continue to make it better and reduce the security concerns. The time calls for a balance between freedom and tracking the money. The Fintech companies have also made traditional banking companies to make necessary changes in their systems to improve their services and user experience. The competition will definitely benefit users to get the benefits they pay for.
About the Author
Daniel Fuller is tech-savvy who also own crypto-business. Daniel love to read about the latest happenings in the world of technology particularly on crypto set up.
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