Finance is not only a gigantic domain, it is also the most diversified one. Numerous industries belong in finance. These industries may seem disconnected, but they are not.
Take insurance industry and the credit card industry. They are different, yes, but are they disconnected also?
Apparently yes, but actually no.
If you max out your credit card and don’t pay your due on time, your credit score would go down. A low credit score might disqualify you from purchasing an insurance plan with good premium. Maybe in a roundabout way, but all financial sectors are connected.
New trends emerging in one of these sectors may affect all other sectors.
In this article, we’ll discuss some of the trends from industries closely related to finance. We believe these trends might culminate in something big in the future.
Automated lending process
AI-based lending sounds like a futuristic idea, but it’s not. It’s a present trend. Some banks and financial institutions are automating the administration of consumer cards, mortgage and commercial loans. In the future, automated lending may become the only lending type.
Small and mid-size businesses never cease to complain that they loan approval process is unnecessarily lengthy and stringent, often pushing them to unsecured loans. There are ample reasons behind the delay and the rejection. The reasons include weak portfolio, archaic rules, delay in decisioning, etc.
Automated lending can overcome these bottlenecks and streamline the loan approval process. When the loan approval decision is taken by individuals, there’s always the risk of non-systematic structuring of small business data collected financial statements. Or even worse, not considering critical data. But when the entire process is handled by an automated system, these are highly unlikely.
Then there’s credit models build by humans of questionable quality. If automated systems develop models, their quality will be perfect. Moreover, tools with business intelligence capabilities can figure out the likelihood of the small business repaying the loan and take decisions accordingly.
Right now, only large organizations are interested in automated lending, more so because installing relevant software and the ensuing system overhaul are very expensive. But in the future, when it will be mainstream, small and mid-size businesses will go this route.
Online only banks
This is a recent trend and growing quickly in popularity. The banking sector is moving to the digital realm, for their own convenience, and for the convenience of their customers. However, their main operational units function offline.
The online only banks can give traditional banking some serious competition. These new generation of banks are called direct banks as they don’t operate from local branches and can be accessed from anywhere in the world.
Visiting the branch is often an annoying experience for bank customers. With digital only banks, however, there’s no paying a visit to the nearest branch. People are doubtful about the legitimacy of internet banks; many are forced to choose traditional banks because they don’t trust online only banks.
The doubts they have in mind are often legitimate. Internet only banks offer high interest rate, which many finds suspicious. Also, there’s no way an individual customer could ever verify the license with which these banks operate. That’s because online only banks don’t display their physical address.
In the future, there will be trustworthy banking outlets operating solely online. And these banks shall have more customers than traditional banks.
New recruitment trends
Enterprises have become smart enough to realize growth and employee performance are inherently connected. Companies with long-term growth in mind now prefer skilled employees than experienced employees.
Many firms, including the small scale ones now prefer engaging with prospective employees on social media. An even higher want to polish up their brand image on social media leveraging social networks like LinkedIn and Glassdoor. Large enterprises are hiring talent relationship managers, only to make sure every single hire is a high-quality one.
When this trend cements itself and get merged with current trends like offshore recruitment, cloud-based work delivery, crowd sourcing and gig economy, we will have a new generation of employees who are highly talented and skilled. By hiring such employees organizations will accelerate their growth and debunk the myth that growth via reduction of operating expense is a sustainable model.
Deep learning in finance
Finance is all about data. And deep learning is a type of machine learning where artificial intelligence learns new tasks and form new concepts directly from data. It goes without saying that deep learning alone has the power to change the face of today’s finance. We believe the financial significance of deep learning will unfold in the near future.
The financial domain that is most likely to be influenced by deep learning is stock market. In the future, individual brokers won’t be needed anymore. Machine learning software will scan important financial information of publicly traded companies and predict a stock’s outcome. Market cap, EBITDA, operating income, 52-week low and high – the software shall consider all these data points as inputs.
Finance pundits and data scientists have already used deep learning to better understand finance. Long-short term networks (LSTM) is a very integral aspect of deep learning. The deployment of LSTM networks has outperformed predictions of S&P 500 stocks by other rigorous data science backed methods.
In the not-so-distant future, deep learning would be applied in all other areas of finance such as insurance, mortgage, banking, debit and credit.
The trends discussed here can help one understand the future of finance. How the financial sectors will be like. How agile these sectors will be. You may not be able to predict how the future of finance will be like, but the trends here definitely help you envision it clearly.