Traditional vs new age finance in the modern age.
The concepts of
finance have always remained consistent with the times. The methods of
executing financial services have undergone many changes though. Traditional
finance relied on building a strong one-stop-shop with the entire gamut of
services that an individual would need. With the Glass-Steagall act, commercial
and investment banking separated for all times to come. But even then,
financial institutions grew to be these giants that assumed powerful roles in
the world. While there were investment banking corporations that controlled the
space of investments and stock-broking, big banks controlled the overall
lending and borrowing businesses. Fifty years down the line, we have different
paradigms in the financial world that are also promising in their own right.
These new paradigms are doing things differently and have newer business models
and offerings that even challenge the status quo. The new age financiers are
growing rapidly with the growth in technology and the growing need for a more
customer-focused and dynamic service. As a new age financial company, we at
Prest Loans (www.prestloans.com) decided
to put together a list of how traditional finances compares against new age
finance.
1)
Lending has more flavours in new age finance- Lending in the age of traditional finance consisted of two kinds.
One was the lending done by banks which was under high scrutiny, regulation and
process governance. The other was helmed by ‘loan shark’ who operated under the
radar who often charged unreal rates of interest and resorted to any means
necessary to recover their sum. The new age of finance has Non-Banking
Financial Corporations that bring the regulated culture of banks but being
dynamic like the loan sharks. NBFCS are actually doing better than ever in
India, with the current market share for NBFCs for Micro, Small and Medium
Enterprises (MSMEs) at 18% which was 8% five years ago1. PrestLoans
(www.prestloans.com) is one such NBFC,
doing well in the age of alternative lending.
2)
Technology plays a much bigger role for new age finance- New age finance relies on technology to deliver a better financial
output to the customer. The application of technology in traditional finance
has been legislation driven. The application of it for new age finance has been
the desire to innovate and do better. Hence, new age financial players can be
seen using the help of FinTech in automating processes, easing the application
process, automating credit checks and increasing transparency.
3)
New age finance looks at customer loyalty in a very different way- Traditional finance relied on long-term relationships and
nurturing them with many methods other than providing traditional finance (the
tradition of gifts etc. for customers runs to this day). New age financial
firms, while working on their own long-term relationships, realize that the
modern customer’s loyalties are easily swayed. A modern customer would happily
switch e-Wallets or NBFC or banking service if he or she gets a better and more
relevant experience. New age firms have hence worked to build that compelling
experience that wins them customers all
around the world, without them physically being in touch with every customer.
4)
New age finance builds experiences over building products and
services- New age financial firms often talk about
‘the perfect experience’ rather than their products and services. In sharp
contrast to traditional finance, the new age players simplify their core
message for the end customer. They only focus on conveying the value that they
really add without talking about what products and services do they offer.
Talking about experience and concentrating on that, is a great way to build
customer confidence today.
5)
New age finance is using the newer trends like block-chain- Block-chain is looking to revolutionize the concept of financial
ledgers and the authority of banks. By decentralizing ledgers and storing
distributed copies (that are hence very secure) the concept of all money in one
place could go away. While this puts the business model of traditional institutions
under great peril, new age firms are finding it easier to embrace the trend and
leveraging it.
6)
New age financial firms are smaller and more agile- A new regulation like the GDPR in Europe2 or the open
banking regulation3 shakes the corridors of traditional players. New
age players are smaller and can adapt to these regulations in a much quicker
manner. They can take bolder decisions and use smarter technology to actually
utilize the opportunity. A classic example is the demonetization wave causing a
lot of trouble to banks but e-Wallets like PayTM and Free-Charge bloomed. More
recently, while banks find the business lending market stifled due to dual GST,
new age lending firms like PrestLoans (www.prestloans.com)
are using it to their advantage to help MSMEs secure better credit.
Conclusion
We would also
like to highlight that an old player is not necessarily traditional and a new
firm doesn’t automatically become ‘new age finance’. It is a question of
mindset and methodology and changing of deeply set ways that decades of
financial markets have taught us. The best thing that a larger player can do is
partnering with a smaller firm like a FinTech company that can provide a
particular product or service which can give an edge to the bigger player. With
a thoughtful approach to finance, using technology and keeping user experience
at the center, a traditional financial company can mould itself to be a formidable,
new-age player.
Sources:
Comments
Post a Comment