This article, written by NextGFI, was pusblished as a guest post on SGE, one of the leading startup and entrepreneurship blogs in South East Asia:
Finance 2.0 will democratize the industry and bring more power to clients
The Internet revolution has changed the economy to an extent rarely seen throughout history. Barriers to new business models are lower than before, resulting in numerous innovations and new startups. Although the financial industry is a few years behind, some fundamental adjustments will soon change the existing value chains. This megatrend has only just begun and will define the financial industry in the near future.
The democratization of the financial industry
As seen in other industries, the changes triggered by the digital revolution are causing a “democratization” of the traditional business world. In the finance industry, interactions are no longer just happening directly between financial institutions and clients but, increasingly, between clients themselves.
This is leading to new and exciting business areas like social trading and mirror trading, peer-to-peer lending, personal finance management and crowdfunding.
An increasing number of finance 2.0 companies are attracting more and more interest from successful investors. Investment management platform Wealthfront recently raised USD 20 million in funding from respected names like Index Ventures and Greylock Partners, while Google invested into the peer-to-peer lending site Lending Club.
So far, very few established financial institutions have reacted to these changes, and many are averse in particular to the potential risks associated with a transition from point-to-point communication to multi-point communication. The new possibilities of the social web are only being used to a very limited extent in banking and, if at all, only as a token measure.
But like other industries, it is only a matter of time before the financial industry has to deal with this development as the Internet makes things more democratic and transparent.
Outlook and huge opportunities in Asia
Innovative strength, new technologies, and lean business models could help new market participants overtake established institutions in some areas.
In Southeast Asia, a fast moving markets with a high affinity to new trends in technology, finance 2.0 business models have a perfect environment.
New green field players will focus on breaking up existing value chains and meeting the new requirements with lean, cost-effective structures that offer them unprecedented opportunities as providers.
Time will tell what kind of opportunities will emerge for new providers in this environment and whether these new models will prove to be sustainable and effective in the long term.
One thing is for sure: Established services providers will continue to feel more margin pressure and cost pressure, which will force them to take vigorous action to find an answer to the revolutions brought to their industry by next-generation finance business models.