An Awe-Inspiring Transition to Digital in the Financial Sector
The only constant in life is change-Heraclitus
Imagine spending a day without your cell phone. Seems inconceivable, doesn’t it? Today our mobile and laptops are virtually our world. From buying groceries to buying stocks, insurance, bank transactions, attending webinars, and lectures everything can now be done on-line. Welcome to the world of digital disruption.
In the present age of knowledge and information technology, the pace of change has been exponential. While most industries have been impacted by this digital transition, the most visible and unexpected changes have taken place in the financial sector for the most obvious reasons.
Banking and all other areas of finance have changed dramatically in the last 2 to 3 decades. Today’s banks are technology companies in the business of intermediating finance. Most traditional areas of the banking business like dealing in cash and cheques, disbursing payments, issuing pay order/ DD, issuance of cheque books etc. have all been automated and the bank is virtually at the doorstep of the consumer.
The intermediation in capital and money markets has also been swept by the digital revolution. From the functioning of exchanges to intermediaries (stock brokers) and other capital market participants, every aspect of the financial services business has changed in unprecedented ways. Primary markets have come a long way— from the Initial Public Offering (IPO) by filling physical forms at fixed prices to electronic price discovery by book building. Today global secondary markets trade big volume in securities both in spot and derivatives markets using digital platforms. From weekly trading settlement to daily rolling settlement and on-line real-time surveillance of positions and risk management, all has been made possible by technology. Electronic holding of securities by depositories and frictionless clearing and settlement has been made possible by the digital revolution. Another significant aspect has been the consolidated account statement of each investor. This is a boon for legal heirs as they can get their legitimate claims.
Asset management, portfolio management and treasury operations of banks have all employed digital tools to enhance returns for their stakeholders. Whether it is Algo trading employed by select firms and individuals or sophisticated strategies devised by mathematicians like Jim Simons using programmed trading, the digital revolution has been at the heart of significant behavioural change in the business of generating alpha.
Insurance has always been a matter of solicitation and it was inconceivable that a standardised product could fit all. The Digital revolution has done exactly that and today a whole lot of insurance products are being sold online as a standard product.
One thing is for sure the digital revolution has impacted business across the spectrum but finance and financial services seem to be most impacted and are here to stay. We would see far greater innovative ideas soon. How we react to these changes will determine our success in the financial world.
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