The advent of the Internet, the sharing economy, and the vast expansion of technology in the first part of the twenty-first century have brought disruption to a huge number of industries. From entertainment to publishing to travel, the world is becoming increasingly decentralized and increasingly more technology-involved.
Financial services will not be exempt from these changes; in fact, the disruption of financial services are just getting started.
These five factors will be major players in the disruption of the financial services industry in the next few years.
Cryptocurrency and Blockchain
Blockchain came to a popular understanding as the technology underpinning the digital currency of Bitcoin. The sheer nature of cryptocurrencies will dramatically change financial services over the next few years. Companies operate in fiat currencies; even the businesses which are now beginning to accept Bitcoin and other cryptocurrencies still generally convert those funds into fiat currencies.
The next few years may see companies which primarily operate in cryptocurrencies, but will also almost certainly see the uses of blockchain expand. Experts are working to develop ways for blockchain to track contracts, online identities, and much more.
In years past, businesses and individuals have borrowed money from a few, limited types of lenders. Big loans, like mortgages or car loans, or substantial business capital, came from banks or credit unions. Smaller loans came in the form of credit cards and revolving credit. When the financial crisis of 2007 and 2008 shut down the majority of smaller lending at big banks around the country, smaller alternative lenders stepped in to fill the gap.
Originally a company that facilitated the receipt and sending of online payments, PayPal started offering business loans to small businesses in 2013. In the beginning of September, they announced that their intention to purchase Swift Financial. The new acquisition pairs PayPal with a company that has underwritten fewer loans overall, but increase what they can write per loan. This is expected to make PayPal a substantial player in the alternative lender community.
Cybersecurity is already a major factor in all online transactions, but as more transactions move online, it seems only logical that there will be increasing threats. Already, cybercrime is incredibly lucrative, and there aren’t really signs of that value decreasing. Financial services companies will likely be under increased pressure to make sure that their networks are secure, that their transactions are protected, and that they are doing everything possible to make sure that their clients’ information is safe.
This will be especially true as more and more information is stored on the cloud. A properly protected cloud network is actually easier to protect than many physical data banks, but public perception has not caught up with IT reality. Financial services companies will be in a unique place to educate consumers since nearly all Americans interact with financial services in some way.
Lending and Peer-To-Peer
When businesses looked for working capital before the Internet age was in full swing, they had just a few choices. They could approach and woo investors, they could get a loan from a bank, or they could mortgage their home, get a credit card, and hope for the best.
Now, businesses have vastly more options about how to finance and fund their dreams. Kickstarters, microloan websites, and more are offering vastly different options to everyone from business owners to car buyers. Financial service companies will need to consider if they are comfortable allowing this business to be taken from them, or if they want to change up the products they offer to be more competitive.
Digital Technology and Digital Wallet
More and more Americans are tired of carrying their wallets around with them. From savings club cards to payment methods, they are scanning their phones and using digital technology to pay their bills. Financial services companies have the opportunity to help make their products easy to use with the inevitable digital wallets, or they can drag their heels and see that business go to companies that embrace the technology more quickly or safely.
Right now, there are relatively few non-major companies that allow their credit or debit cards, for example, to be used with Apple or Samsung’s digital payment options. If companies don’t allow for that usage, they are likely to see their clients switch to companies that allow them more technological freedom.
Many of these technologies are still under development or have not yet seen mainstream adoption. Some, like Bitcoin, may never achieve more than niche use. But financial services companies must keep a close eye on what’s happening, what is evolving, and understand how it affects their businesses if they want to succeed in the future.