“Fintech” has become a buzzword in the tech community of late, and for good reason as well. Based on a KPMG Pulse of Fintech report, funding for the industry went over the US$31 billion mark in 2017 – US$229.1 million in Singapore alone. This year, it only took six months for global investments to reach US$41.7 billion, surpassing that of last year, says research by Fintech Global.
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But what is “fintech” really about and why has it seemingly taken over the financial landscape? To the uninitiated, fintech is short for financial technology, and is at its core the use of technology to develop new financial services and products – often for financial businesses themselves.
Such innovations (such as cryptocurrency, mobile banking, crowdfunding and blockchain) are typically disruptive to the traditional market, and may bank on other technological trends such as big data, the Internet of Things and artificial intelligence (AI).
While this has created a wealth of opportunities for startups to break into the finance market with new fintech innovations, industry giants in the form of major insurance and banking institutions have hopped onto the bandwagon as well with their own developments, resulting in changes in various banking, lending and insurance services.
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For one, traditional banking is evolving into a more digital process with mobile payment apps, Internet banking and digital, paperless outlets. DBS, one of the most popular banks in Singapore and the largest one in Southeast Asia, is leading the way with a complete rebranding. Kick-started in May 2018, its golden jubilee saw the “world’s best digital bank” focusing a lot more on digitising and automating its services with an aim to make banking “invisible”.
It started in 2014 when the bank launched DBS PayLah!, its mobile payment and money transfer app. Today, it has unveiled fully mobile, digital banks (also known as digibank) in India and Indonesia that use AI virtual assistants and natural language technology to serve more than a million customers.
But it’s not enough to introduce these front-end solutions. It had to be a total revamp that tackles even the back-end processes, such as running internal operations on the cloud and rejuvenating old legacy systems with APIs.
With increased digitisation, comes more obsolete jobs as well. In DBS’s case, Digibank’s AI-powered assistants have replaced customer service representatives and conventional bank tellers. Likewise, OCBC’s digitisation efforts have led to the cutting down of teller jobs. As Business Times reports, the number of tellers working at OCBC has dropped by 15 percent in the last five years, and the bank is looking to reduce the number even more to half as many in the next two years.
At the same time, the remainder of the banking workforce that deal with customers are sent for training to get them reskilled and geared up for the new digital wave. Known as the professional conversion programme (PCP), it has seen hundreds and thousands of employees from Citibank, DBS and UOB.
In the area of investment, automation has also been made possible through fintech. Dubbed “robo advisers”, they replace their human counterparts, and use algorithms and the abundance of data they have to offer investment advice, making it a less complex and costly process for individuals. These are useful tools for investing newbies, as well as those who lack the time and energy to manage their assets and investments.
Various apps have popped up as well, some providing a marketplace that matches investors with borrowers, others introducing an easy, passive way to make micro-investments.
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A close cousin to investing is lending, of which the traditional process involves the borrower, lender and regulator. With fintech introducing peer-to-peer lending and crowdfunding platforms, the middleman is removed.
The money now moves directly from one party to another without the help of intermediary institutions such as banks and insurance firms. As such, the cost of borrowing is pleasantly lowered, while the length of such transactions is shortened.
Though the absence of an established middleman translates to more control over the lending process, there is the issue of security. How do you ensure you’re not just throwing your money away? Thankfully, fintech has solutions for this as well, and the answer lies in data analytics.
Lenders are able to gather a wealth of data from sundry sources and websites, with the click of a button, to analyse the borrower’s creditworthiness and discern the risk attached to them. Because such data is so readily available, the review process becomes a lot speedier and no longer requires stacks and stacks of documents – which means greater convenience for the borrower.
Processes such risk assessment and underwriting have been automated with fintech, while traditional banks are lagging behind with manual, human-powered work. Needless to say, thanks to automation, it has led to a massive reduction in operating costs, and increased the capability to process and approve more cases – in particular, cases that larger banking institutions would typically reject.
Though the ones who stand to gain more from these new lending models (made possible through fintech) seems to be the borrowers, the lenders are not forgotten either and receive more autonomy over their loans – a big benefit of security and control that isn’t afforded in traditional processes.
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Just as other sectors of the finance industry have seen a flurry of new apps, services and programmes, so has the insurance sector. From Singapore Life to PolicyPal, these products simplify the process of getting insured and advise you on the best plans for your specific needs, with all things taken care of within the digital sphere.
Not only do users get more transparency over the process, they also get to dodge the traditionally high premiums of insurance offered by the usual insurance companies. While the consumers enjoy these digital perks, the agents suffer the consequences.
Gone will be the days of commission-driven insurance sales, when people are better equipped to buy the plans themselves. It’s no surprise that the fintech-fuelled digital transformation of finance corporations equates to the loss of jobs, and while some have quietly accepted their fate, others have been pushing back – such as the insurance agents of Prudential.
After announcing their plans for digitalisation, about 350 out of 600 its dissatisfied employees submitted a petition in protest, citing that focusing on online sales will threaten their earnings, and thus, their jobs.
Perhaps it’s a necessary evil to reduce or get rid of soon-to-be obsolete jobs. For Prudential, they’ve set their sight on using new technologies such as AI to data analytics to produce better products and experiences.
As long as traditional companies such as DBS and Prudential continue to adapt to the changing landscape and customer needs, they just might stay afloat long enough not to be wiped out by the fintech disruption. As for the others who still believe in the “old is gold” adage, it’s likely to end up as fool’s gold.