Article | September 14, 2021
Digital transformation had a huge impact on every sector, and this includes finance. Digital disruption in finance can be defined as an event where new technologies replace traditional methods for financial transactions. This article will discuss how technology for finance has changed over time, why it's vital to stay current with digital trends, and what you need to do to make your company ready for the future!
Make plans for the coming age of Digital Transformation
The finance team has traditionally used tools like spreadsheets, reports, and presentations to managing its processes. However, digital disruption in finance is creating new challenges for the finance department because of these changes - they need to learn how to use technology effectively or risk getting left behind! Here are some examples demonstrating why digital transformation of your company's financial processes can be beneficial.
Digital transformation gives the finance team access to better systems to help them do their jobs more efficiently and effectively.
Digital transformation gives the finance team access to better tools that will allow them to be more agile and deliver new services for their clients.
Digital transformation saves money for the company because new technology is cheaper than old technology like spreadsheets and presentations.
As such, if you want your company ready for the future, make sure your finance department is aware of digital trends and knows how it can integrate new technology into its workflows.
Prepare for a transaction revolution as automation and blockchain infiltrate further into the financial process:
While financial institutions have been working on transformation plans for many years, the recent cryptocurrency and blockchain revolution indicates that things are moving faster than ever before. As a result, banks are starting to understand that they need to be open to new technologies and ways of working to stay relevant in their industries and attract new clients. Financial institutions need to brainstorm new ideas and innovative ways of working that will allow them to be relevant in today's market while at the same time applying technology in ways that facilitate faster and safer processes.
Financial Institution's role in Digital Transformation:
Now that most finance processes are automated, the finance industry will provide more business insights and services. Of course, success is not a certainty, but digital marketing for financial services can get more focused and accurate.
In essence, FinTech technology will improve financial management and help production. It can do this by rethinking procedures, breaking formats (finance is a chaotic environment), streamlining reporting, and endorsing transactions with a better data set. As a result, businesses may find themselves better placed to make long-term decisions and do not require immediate cash flows. The key question is whether financial technology can deliver on these promises in a way that provides real benefits for customers and shareholders while being price-insensitive enough to be affordable for all.
The way for financial teams to be agile:
Although digital transformation is a competency within finance, most bankers still focus on software development and hopping from platform to platform. One of the biggest problems in overcoming this difficulty is the lack of a common language. An effective digital transformation strategy requires the sharing of data - including between departments. Sharing information enables agility because it allows each team to understand their strengths and weaknesses more clearly. It also enables cross-functional teams that can reach out to business partners outside their core business functions when necessary or to solve problems outside their domain of specialty. The transformation can also help in creating compelling promotions and creating persuasive advertisements for your financial services.
"As workplaces start to open, a hybrid model—seems to be a new norm that provides flexibility for people to operate both from their homes and offices, as we emerge out of the pandemic period."
Vice President (Model Validation) at Citi
A more adaptable future in digital transformation for FinTech
Several banks and financial institutions are making it a point to associate themselves with technological innovation. Recent data shows that nearly half of financial institutions worldwide have made some sort of digital transformation in the past five years – from transaction processing to customer relationship management. Increasingly, these institutions are looking to the future and thinking about using technology to transform how they do business. Digital transformation of finance is just one of the many buzzwords we're hearing from financial institutions right now. Financial institutions need to stay connected and relevant in an increasingly competitive marketplace by designing financial products and services that meet their changing demands.
Cloud computing for a more agile future
What's more, the shift means businesses can scale faster using the cloud--perhaps even more effectively--than before. The momentum behind the online collaboration, instant messaging, and Web browsing has only accelerated in the past few years -- threatening to upend the very foundations on which many large companies have built their business models. This shift means banks will need to find new ways to stay competitive and fast. Tech giants such as Amazon, Microsoft, and Google make significant inroads with cloud technology into innovative services and products into the bank space. We'll see if they also can help shake up the way work gets done -- either here or in offices around the world, as migrating infrastructure to the cloud enhances access, flexibility, and scalability for both FinTechs and banking giants.
The current financial crisis has led to a re-examination of traditional finance models and ways of working. One area that has gained particular attention is the digital transformation of finance teams. The potential impact of digital transformation on finance is intense. If well-timed, it may help finance organizations attract and retain talented employees while reducing operating costs and enhancing returns on investment in core operations.
What are the four main areas of digital transformation?
Digital transformation is a broad term that generally refers to an increase in efficiency across many business functions using technologies such as software applications, data analysis techniques, networks, and infrastructure. To achieve digital transformation, the organization needs to rethink many core processes while integrating new technologies. In addition, there are challenges associated with changing from an existing model and overcoming internal resistance.
What is the future of finance?
The future of finance is in changing the way companies raise money for new ventures and how financiers themselves manage their portfolios. Fundamental changes include using technology that helps investors access data and choose more suitable investments, better deals, and structures for companies that now seek to raise money from multiple sources rather than just raising an individual round.
What are the top technologies for finance?
Technologies used in the financial services sector have become so integrated that it is difficult to understand their impact on a business or industry. Nevertheless, here are some of the emerging technologies that are in use right now:
Hybrid Cloud Servers
Robotic Process Automation
"name": "What are the four main areas of digital transformation?",
"text": "Digital transformation is a broad term that generally refers to an increase in efficiency across many business functions using technologies such as software applications, data analysis techniques, networks, and infrastructure. To achieve digital transformation, the organization needs to rethink many core processes while integrating new technologies. In addition, there are challenges associated with changing from an existing model and overcoming internal resistance"
"name": "What is the future of finance?",
"text": "The future of finance is in changing the way companies raise money for new ventures and how financiers themselves manage their portfolios. Fundamental changes include using technology that helps investors access data and choose more suitable investments, better deals, and structures for companies that now seek to raise money from multiple sources rather than just raising an individual round."
"name": "What are the top technologies for finance?",
"text": "Technologies used in the financial services sector have become so integrated that it is difficult to understand their impact on a business or industry. Nevertheless, here are some of the emerging technologies that are in use right now:
Hybrid Cloud Servers
Robotic Process Automation
Article | September 14, 2021
Many financial services organizations have already begun to take advantage of ML technology because of its proven ability to reduce operational costs, increase revenues, improve productivity, enhance compliance, bolster security, and enrich the customer experience. However, most companies are in the early stages of exploiting the benefits of ML.
Article | September 14, 2021
One of the brutal facts of the COVID-19 outbreak is that it will be difficult for small businesses to survive. The self-distancing and shelter-in-place orders, while temporary, are taxing for already cash-strapped merchants. Adding to the hardship, small businesses may find it especially difficult to get a much-needed loan from their local bank or credit union since many have closed physical branches to encourage social distancing. And while banks offer many services online, only 1% are capable of extending a loan digitally.
Article | September 14, 2021
The Buy Now Pay Later (BNPL) phenomenon is gaining momentum around the world. BNPL services give consumers who do not have access to credit the ability to purchase goods and services with no deposit and to pay for goods and services over time. However, while banks, consumer credit providers and alternative credit providers will benefit from BNPL services, they also introduce challenges for financial regulators, existing providers in related markets and banks themselves.
Banks need to make sure that they are ready for a new type of competition. Larger retail banks seem to have added BNPL business to their portfolio already. Smaller banks will be forced to enter the market, either by acquiring a BNPL provider or rolling up the sleeves internally. In any case, it’s time that banks get rid of their prejudices and get on board with this consumer-friendly innovation that will ultimately benefit them by providing an influx of new customers, at least in the long run.
For a complete understanding of buy now pay later, we should first look at the traditional financing models that banks and fintechs use to lend credits. These financing technique is known as point-of-sale or POS. Let’s take a look on POS below.
How POS (Point-of-sale) Financing services work:
Traditional POS financing is a model that has been around for decades. Most consumers are familiar with its most basic form: pay now, pay later. With POS financing, a customer signs up for credit to buy a product, typically for a portion of its full price. Some POS financing programs require no down payment. Once the customer has made all payments, they become the owner of the goods.
POS financing works by financing the full price of the product, not a portion of the price. This means the customer pays the full purchase price of the item, plus interest. While POS financing has been popular for decades, it has faced some challenges. The payment model doesn't cater to customers who can't afford to pay the full purchase price upfront — these shoppers are often low-income or first-time-buyer customers. POS financing also requires shoppers to make large payments right away, which can be difficult for them.
“The banking “industry” is changing rapidly – almost on a daily basis. However, those changes are not affecting people as much as we may think, particularly the underserved and unbanked.”
-Steven Rosamilia, CEO at IMEX USA
How BNPL helps customers:
BNPL, or "buy now, pay later," payments enables customers to pay for their purchases over time, interest-free. BNPL payments don't appear on a customer's credit profile, so it doesn't affect their credit score. Here are some of the major points where BNPL helps customers:
BNPL payments give customers the ability to buy now and pay later without accruing interest. BNPL payments are typically not fixed and fluctuate based on a customer's ability to pay over time.
BNPL payments often appear in the form of layaway, credit extensions or installment loans.
BNPL payments may attract customers who want to own products but don't have the money upfront.
BNPL payments also work well for customers who want to spread out payments over time.
How BNPL is different than other POS lending services:
BNPL is an alternative payment technique offered by the payment service provider to businesses. Payment service providers use credit lines provided by banks and credit card companies to offer installment loans to customers.
Unlike conventional POS financing, BNPL focuses on consumers' ability to purchase a product rather than their ability to repay their loan. This is achieved by classifying consumers into different groups based on their creditworthiness and offering consumers an installment loan with payment periods that vary based on their creditworthiness. As a result, payment service providers use BNPL as a risk-based financing technique.
The payment service provider considers consumers' creditworthiness by classifying them into different consumer groups, such as "prime" consumers, "sub-prime" consumers, and "near-prime" consumers. These consumer groups are similar to credit profiles used by conventional credit card companies. With BNPL, businesses can request a payment profile classification from their business service provider.
The payment profile classification determines the installment loan payment schedule that the consumer receives. Businesses can request a payment profile classification from their business service provider. The payment profile classification determines the installment loan payment schedule that the consumer receives.
For checking your credit-worthiness before lending you BNPL, service providers may check consumer’s payment history, income, job stability, and other major factors. The financial service provider then use these factors to determine the installment loan payment schedule that the consumer receives.
What features BNPL brings to the table for Merchants:
Buy Now Pay Later is a new way to process payments. It's for young adults with shaky credit. The option lets merchants accept credit or debit cards but defer the payments.
It lets merchants offer customers a low payment schedule, typically 6 to 24 months. But it's different than payment plans. With BNPL, there's no interest, no hidden fees, and no penalties for not paying all at once.
BNPL works with all credit cards, not just Visa or MasterCard, and payments are processed securely through Authorized pages. BNPL increases conversion and sales by 20% for merchants while boosting average order value by 60%.
For customers, BNPL gives them access to the credit they otherwise wouldn't have. And for merchants, BNPL means more conversions, more sales and more repeat customers. BNPL is offered by a handful of digital storefronts, including Best Buy, Kohl's, and Walmart. But it's a new way of doing business that allows both parties to benefit from the deal (compared to 2.5 percent for a credit card transaction).
Why should Financial Institutions accept BNPL:
Amazon's Buy Now Pay Later (BNPL) program is both a blessing and a curse for retailers — a blessing as it offers them a way to boost sales by attracting shoppers who are price sensitive, and a curse because it threatens to erode bank's main business.
Amazon's BNPL program has only been around for two years, but it has already become a crucial part of the site's business model. The program gives people the option to buy products on Amazon with deferred payment terms. Customers purchase the product, but they aren't charged to agree to a 90-day payment plan until later.
While that's far less than the average credit card payment period — 25% of Americans carry credit card debt — BNPL has become popular enough with Amazon shoppers that it has shrunk Amazon's average purchase amount by $7.77, according to one report. That's a significant hit.
Amazon's BNPL program may be taking Amazon's main business, online sales, down a notch, but the banks that have issued BNPL cards aren't worried.
That's because BNPL cards, like credit cards, are financing. And financing today looks different than financing did even five years ago. Many consumers, especially Gen Z, prefer to buy with credit and postpone payments.
This shift in consumer preferences has major implications for banks. Banks issued financing to safe, creditworthy customers who wanted to buy now and pay later when credit cards were first introduced. But bank lending practices have changed over the years, and today many consumers use credit cards to finance products they might otherwise buy with cash.
How can Banks integrate BNPL in their lending services
BNPL is a fast-growing segment of the lending market. In 2015, BNPL made up 15.2% of all consumer credit originations and grew to $12.1 billion, according to the Federal Reserve Bank of New York.
BNPL's share grew from 8.4% in 2014 to 14.7% in 2015, according to Experian. A BNPL strategy allows banks to ride the wave of increased consumer debt by managing their balance sheet more aggressively. This helps stabilize revenues and boosts the profitability of loans as banks can charge higher interest rates.
While BNPL loans often come with hefty price tags, lenders can minimize their losses by structuring BNPL loans as an asset purchase rather than a loan sale. First, banks have to make sure they can fund the loans, either with their balance sheet or with funding from a non-bank lender. Second, banks have to decide whether the loan will be purchased directly or indirectly.
Cross River Bank is currently riding the BNPL trend with this model by providing Affirm with funding capacity. The model is safe as BNPL firms often purchase those loans after origination, but it also caps the potential gains banks can earn as the fee is often a small percentage of the total origination.
How can banks initiate marketing their buy now pay later services?
First, banks need to be agile and go after merchants that already have relationships with customers. Fintechs, on the other hand, must convince merchants that their service, regardless of its costs, is worth paying.
There are obviously some similarities. Both must win over merchants. But they also have different advantages. Fintechs don't have existing relationships or established customer bases, so they must build both from scratch.
Fintechs, however, have an advantage over banks in that they have the technology. In addition, fintechs can integrate their solutions into existing e-commerce systems, giving merchants an out-of-the-box, easy-to-deploy solution. This, in turn, makes fintech more attractive to merchants.
Fintechs can also target specific markets. For example, some banks sell online merchant accounts, but their service is often limited to larger merchants with more established distribution networks. Fintechs, on the other hand, can target smaller merchants, giving them an approach that's better suited to the needs of smaller businesses. Fintechs can also target specific niches. A fintech that targets small businesses, for example, could focus on those that sell high-priced goods online.
Fintechs don't have to build their distribution networks, either. Instead, they can use existing online channels like Amazon, eBay and Alibaba. Of course, fintechs can also sell directly to merchants, but this approach requires additional sales and marketing efforts.
Fintechs can also build their distribution networks. They can use a direct-to-consumer model, selling directly to their customers. This approach is best suited for fintech that is sells online merchant accounts and works for fintech that targets specific markets.
BNPL programs have a critical role in financing trade and industry and financing small and medium-sized enterprises (SMEs). For this reason, BNPL programs should be an integral part of banks’ lending portfolios. Banks should optimize the utilization of BNPL programs.
At the same time, the regulatory framework for BNPL programs needs to be revised. The business models of BNPL programs should be standardized and standardized products should be available. At the same time, the regulatory framework for BNPL programs needs to be revised.
What is buy now pay later?
Buy now pay later, as the name suggest, is an option Fintechs give you to purchase a product and pay for it after a certain amount of time. It works like a credit card payment, but it doesn’t charge you interest.
Does buy now pay later affect credit score?
No. Buy now pay later does not affect your credit score as long as you pay your dues timely. It is constructed in a way that you won’t have to worry about your credit score. However, banks may see your credit score before giving you BNPL service.
Why was I not eligible for buy now pay later?
Financial services or banks check your credit-worthiness before lending you the services of buy now pay later. They may check your payment history, income, job stability, etc. So before applying for BNPL, make sure you have a strong credit-worthiness.
What are the alternatives to buy now pay later?
You can use your credit card the same way as buy now pay later, but your interest-free days would only last till they bill you. You can also opt for interest free deals on purchases from e-commerce store.