Markets In Action

How the Digital Economy is Changing Your Financial Life

Think about how deeply technology has reshaped your approach to your money.
You take for granted that you can check your banking and investment account balances at any time of day or night, and transfer money at will. You may not remember the last time you wrote a paper check-or even received one, as most paychecks and other types of payments are deposited directly into bank accounts.
We take such conveniences for granted today, but they were virtually unheard of even a decade or so ago. We’ve come a long way from the days when ATMs were the cutting edge in financial services technology.
And the changes keep on coming, as today’s digital economy continues to present innovative new ways for us to manage our finances. Financial technology, or “fintech,” has emerged as a hot area-and as an investor and customer, you’re likely to reap the benefits.
It’s estimated that the worldwide banking industry will spend $360 billion on information technology in 2016-the largest of any industry sector, the Wall Street Journal notes. Much of that investment will go toward keeping pace with industry changes and meeting customer demand for new services.
Here are a few trends to keep an eye on:
Going mobile. It’s no secret that mobile computing via smartphones and tablets has exploded, and users are increasingly turning to their devices to handle payments, manage their accounts and more. According to KPMG’s Global Mobile Banking Report, the number of mobile banking customers is forecast to grow to 1.8 billion in the next four years-about one-quarter of the world’s population.
That means financial institutions are expanding and enhancing mobile banking and payments solutions to better serve an on-the-go customer base. JPMorgan Chase recently announced that they would be rolling out new cash machines, eATMs, later this year that do not need an ATM card, but will allow customers to log into their accounts with an app.
Meanwhile, a growing number of fintech start-ups and established companies like Apple and Google have entered the mobile payments space, creating more competition and driving further innovation.
If you’re not yet managing your money through your own mobile wallet, that’s likely to change in the near future as the technology improves and becomes more widespread.
New horizons in lending and borrowing. In the past, most of us needing a loan to start a business or pursue another goal might have paid a visit to our banker, or approached a family member or trusted friend. But the digital economy is opening up wider options through peer-to-peer, or P2P, lending and borrowing, with benefits for entrepreneurs and investors.
New platforms and online marketplaces make it possible for those who need smaller amounts of money to get the financing they need. This trend may have a particularly powerful impact in developing countries and underserved communities, where a loan or initial investment of only a few hundred or few thousand dollars can make a significant difference.
Keep an eye on new platforms that facilitate P2P lending-you may find that these can help you to secure financing for your own dreams, or to extend your support to small entrepreneurs you’d like to see succeed.
Additionally, crowdfunding services like Kickstarter and Indiegogo have already proven the power of online platforms to help people to support projects they love. But those services work on a contribution, rather than equity model.
New Ways to Manage Information. Blockchain technology also has the potential to transform how financial institutions interact with each other and with their customers. While bitcoin and other “crypto-currencies” have generated the most headlines, the underlying blockchain technology they are built on is being increasingly looked at for its application to support markets in existing financial services products and services.
The blockchain or distributed ledger model allows for multiple market participants to have access to a shared ledger of information about products and transactions. This distributed ledger approach could potentially be applied to help build more efficient and secure ways of tracking ownership of a broad range of assets and allow for “smart contracts” to manage transactions.
While this is a very new technology and the road to implementation is not yet clear, blockchain is an exciting new way of managing information that is spurring ideas about innovative ways to improve a broad range of markets from trade finance to derivates and foreign exchange to land and property registries.
Beware the dark side. Of course, along with the advantages, this new connectivity through the digital economy brings potential risks.
First, cybersecurity is an ever present threat for online banking, just as it is for retail, government agencies and every other connected industry. The banking and financial services industry have led the way in protecting investors by tightening cyber defenses against hackers and improving response to critical incidents.
Second, don’t let enhanced connectivity seduce you into a “herd psychology” effect when it comes to managing your financial portfolio. For example, some experts have warned that connections through social media technology may lead investors to make poor decisions as they see others panic at falling markets.

Those are just a few of the changes on the consumer side as the financial industry continues to strive to improve service, enhance security and make banking more responsive to customers’ desires, at a lower cost.
But remember: The technology may change, but that doesn’t change the need for a carefully considered, diversified financial plan. In fact, as the fintech revolution continues to advance, it very well may underscore the need for human guidance and advice to help navigate the options.
That’s where working with an expert can help you ensure you’re making the right calls for your financial future. Talk to your financial professional about how you can take advantage of the new opportunities in financial technology.
For more on how financial technology is changing investing, and how the industry is responding, check out this report on “The Investor of Tomorrow” from the 2015 SIFMA Annual Meeting