Business
February 26, 2024
The foundation of international economic activities has long been traditional finance, which is distinguished by well-established banking institutions and financial infrastructures. Disruptive technologies, however, have brought forth a new era of innovation, upending the existing quo and altering the financial environment. These technologies, which range from blockchain and cryptocurrencies to artificial intelligence and robo-advisors, are altering the way we do business, make investments, and manage our money.
The underlying technology of cryptocurrencies like Bitcoin, known as blockchain, has changed the financial landscape. Because it is decentralized, financial transactions are transparent, secure, and immutable, therefore there is no need for middlemen.
Blockchain offers the ability to automate procedures like international trade financing, cross-border payments, and smart contracts, cutting costs and increasing efficiency. Its scalability and regulatory issues, however, continue to prevent widespread implementation.
According to a report by Marketsand Markets, the global blockchain market is projected to reach $39.7 billion by 2025, growing at a compound annual growth rate (CAGR) of 67.3%.
Christine Lagarde, Managing Director of the International Monetary Fund (IMF), stated, “I think that the role of the disruptors and anything that uses distributed ledger technology, whether you call it crypto, assets, currencies, or whatever… that is clearly shaking the system.”
Cryptocurrencies have drawn attention from the general public because they provide alternative forms of digital money that are not regulated by central banks. Cryptocurrencies have made cross-border transactions quicker, less expensive, and more accessible despite the hazards posed by their volatility and regulatory ambiguity.
Additionally, the technology that underpins them has created a brand-new asset class called digital tokens, opening the door for cutting-edge fundraising techniques like initial coin offerings (ICOs) and security token offerings (STOs). Additionally, central banks are looking at the idea of Central Bank Digital Currencies (CBDCs), which have the potential to change the way money is used.
The total market capitalization of cryptocurrencies exceeded $2 trillion in 2021, as reported by CoinGecko.
Janet Yellen, former Chair of the U.S. Federal Reserve, mentioned, “Cryptocurrencies are a particular concern… many are used, at least in a transaction sense, mainly for illicit financing.”
In the financial services industry, machine learning (ML) and artificial intelligence (AI) are becoming widely used. By using chatbots and virtual assistants, banks and financial businesses may automate procedures, increase risk analysis, and enhance customer service. Robo-advisors, which offer individualized financial advice and portfolio management and frequently do so at a lesser cost than traditional wealth managers, are likewise powered by AI-driven algorithms.
However, significant thought must be given to ethical issues, algorithmic biases, and the possibility of employment displacement.
According to a report by Accenture, AI in the banking industry could potentially reduce costs by up to 25%, resulting in annual savings of $447 billion by 2023.
Cathy Bessant, Chief Operations and Technology Officer at Bank of America, said, “The combination of robotics, AI, and big data analytics can provide transformational solutions across our lines of business.”
Application Programming Interfaces (APIs) are the driving force behind Open Banking efforts, which allow financial institutions and outside companies to securely share data.
This promotes innovation by enabling fintech businesses to create cutting-edge goods and services that address particular client requirements. Open Banking encourages financial inclusion, boosts consumer satisfaction, and encourages competition. For wider implementation, however, issues with standards, data security, and privacy must be resolved.
Research by McKinsey suggests that open banking could generate $7.2 billion in revenue opportunities for banks by 2022.
Valdis Dombrovskis, Executive Vice President of the European Commission, stated, “Open banking… is crucial to ensure that Europe embraces innovation, benefits from increased competition, and promotes digital and financial inclusion.”
Peer-to-peer (P2P) platforms and crowdfunding have transformed lending and fundraising thanks to disruptive technology. P2P financing eliminates conventional middlemen like banks by connecting borrowers and lenders directly. Similar to this, crowdfunding platforms let business owners get money from a variety of investors.
Insufficiently serviced people and enterprises can benefit from these new funding methods, but to safeguard investors, legal frameworks and risk management procedures must change.
The global P2P lending market is estimated to reach $1,291.48 billion by 2026, as projected by Verified Market Research.
Renaud Laplanche, CEO of Upgrade, stated, “P2P lending and marketplace lending will transform the way consumers and small businesses access credit and invest.”
