Why Is Financial Innovation Important?
The improvement of financial instruments and financial products is beneficial to consumers, businesses, and financial institutions alike.
With better financial technologies, financial institutions can improve risk management when making lending decisions, or providing consumers investment advice backed by market data that’s updated in real time.
Businesses with stronger financial technologies can manage their corporate finances more efficiently and accurately, and use payment systems with built in fraud protection services to give them greater peace of mind their transactions are secure.
Consumers can take more control over their financial wellness when given access to superior financial technologies, and experience better ways to manage their finances than ever before.
This betterment of the financial services for all players in the financial industry is exactly the goal of FinTech companies. Using their expertise in application programming interface (API) development to create new financial tools for consumers, businesses, and financial institutions to take advantage of, they have spearheaded the influx in financial innovation.
What Drives Financial Innovation?
Financial innovation is driven by inadequacies or inefficiencies in the financial market. These are the problems that new technologies or systems seek to solve.
In the case of behavioural finance, the study of how investors behave and the subsequent effects on the market, human bias in investing was exposed and has led to increasing amounts of investors using Big Data to drive investment decisions.
AI and machine learning powered technologies use Big Data and natural language processing to automate processes and eliminate the human bias in investment decisions, as well as mitigate fraud risk.
Financial Innovation Examples
There have been countless improvements to financial technologies and systems in recent years. These examples of financial innovation showcase their wide reach in creating a better financial world for everyone.
Mobile Banking
When a gap was found in the Australian financial services market for a financial institution that provided consumers comprehensive mobile banking services and greater control over their money, the smartbank 86 400 was created. The bank gets its name from the number of seconds in a day to reiterate how customers can access all of their banking services on their phones anytime they need to.
By identifying a gap in the market, 86 400 was challenged to innovate beyond existing services for consumers, and become Australia’s first smartbank. While looking for data aggregators to partner with to enrich the platform with relevant financial data, 86 400 came to Envestnet | Yodlee for market leading data aggregation tools.
To learn more about how Envestnet | Yodlee and 86 400 delivered an innovative financial solution to consumers, read the full case study.
Lending Platforms
Online lenders are modernising lending by using AI and machine learning technologies to automate and streamline the clunky processes of traditional lending platforms. Calculating interest rates, providing more tailored lending options, and more accurately identifying fraudulent borrowers to mitigate risk are all made possible thanks to financial innovation in APIs and natural language processing.
Accounting
To help make accounting for small business owners easier, Xero was created by providing a modernised way for small businesses to do all things accounting. As a cloud-based accounting solution, Xero enables small business owners with the ability to check balances, send invoices, or keep track of businesses expenses all from their phone.
Xero is a solution aimed at small businesses accustomed to using traditional solutions like Quickbooks for their accounting needs, and who would appreciate an accounting solution that plays nicely with mobile devices and tablets. Xero partnered with Envestnet | Yodlee, a leader in online and mobile personal finance management (PFM) solutions for data aggregation services.
To learn more about how Envestnet | Yodlee and Xero worked together to innovate accounting solutions for small businesses, read the full case study.
Payments Systems
Businesses looking for a better user experience while reducing the fraud and fees typically associated with online payments and credit cards can look into innovative payment solutions. Implementing the right payment system lets business owners focus on their customers first while letting their payment platform flag any potential fraud risks for them automatically.
Does Financial Innovation Help Economic Growth?
Financial innovation drives economic growth across industries because financial economics have such an impact on both businesses and consumers. As we move towards a more global economy, we see innovations in international finance impacting economies across the globe.
Australia is the latest country to begin implementing an Open Banking regime under the Consumer Data Right (CDR) that gives consumers more control over their data than ever before. As more types of financial data become available for consumers to share with accredited data recipients under the CDR, the greater number of FinTech companies and financial institutions will be created to offer consumers better ways to achieve financial wellness.
Similar initiatives have been implemented in the European Union and the United States, and point to how Open Banking will continue to fuel financial innovation for the foreseeable future.