The Role Of Blockchain, Big Data And Iot In The Fintech Sector
Decentralized, consensus-based blockchain can insulate transactions, improving customer experience and cut costs.Big Data generates new revenue streams through data-driven offers and offers improved services supported by superior security.An example of IoT-enabled lending is just-in-time financing solution for logistics providers
In his book, Darkness By Design: The Hidden Power In Global Capital Markets, Oxford professor Walter Mattli paints a vivid picture of how algorithmic trading has disrupted stock market operations the world over with a few nanoseconds making the difference between eye-popping gains or crippling losses.
Mattli’s arguments, of course, dwells on the darker, greed- driven side of disruption, characterized by massive investments in supercomputers that a motley set of corporations has been using to foster opaque transactions involving split-second buying and selling of securities. But there is a benign side to this disruption as well, driven by new-age technologies such as blockchain, Big Data and the Internet of Things, and going beyond the stock market to embrace banking, insurance, and practically every other segment of the financial services industry.
Blockchain in financial services
The term captured popular imagination for its association with crypto- currencies, more specifically, Bitcoin but its applications go far beyond today, and a large number of organizations in the realm of financial services are adopting blockchain technology to improve transparency and operational efficiency.
The financial sector is typically characterized by an astoundingly large number of transactions running into trillions of dollars that are transferred across geographies. The primary function of the financial enterprise is to safeguard the client’s money which is invariably supported by a host of mediators. It does not take an expert to imagine the crippling effect of hacking information and fraudulent activities on the global financial system. This is precisely where blockchain comes in. The decentralized, consensusbased mechanism insulates transactions, improving customer experience and saving substantial costs.
The technology is, in fact, capturing the imagination of financial executives across the globe, with one report asserting that 77 per cent of FinTech set-ups are likely to adopt it by 2020. In fact Harvard Business Review claims that blockchain will do to banks what the Internet did to the media industry. Areas blockchain works in financial services…
Checking fraud: Where there is a will, there are relatives!This is a popular saying in jest. Similarly where there is big money thereby lurks financial frauds.Ergo, the need to secure the flow of money arises as practically every component of the financial services sector is vulnerable to massive losses caused by financial crimes.
A key reason for this is that the sector has traditionally been leaning on centralized databases that are highly susceptible to cyber-attacks and fall prey easily to hackers. Once a cyber-thief weans his way into a system, it will take him less than a fraction of a second to clean out the last dime.
This is where blockchain assumes significance for the security and impregnable technology it offers on a distributed database system. Since all the blocks are linked to each other, if one block is broken into, all the others on the chain immediately flag the disturbance, helping track the breach in real time and virtually stonewalling the hacker from tampering with the larger system. With this feature, cyber- crimes and attacks of this kind prevalent in the financial sector can be effectively eliminated. Know Your Customer (KYC): Banks, mutual funds and other service providers have had to bear huge costs in complying with the know-your- customer of KYC norms mandated by the Reserve Bank of
India in order to check money laundering and terror financing. The KYC process is cumbersome, time consuming, and had to be followed individually by the various components of the financial services industry.
At present, banks upload their customers’ KYC data onto a central pool which is used for checking the antecedents of existing and new customers. Blockchain makes the entire process simpler, allowing for the independent verification of each client by one service provider to be accessed by other thereby eliminating the need for duplicating the entire
KYC process each time a customer chooses a new fund house, insurer or bank. And since blockchain delivers quasi real-time information, there would be a huge saving in cost and efforts for compliance departments. Documentation: In today’s complex commercial world, where goods and services are exchanged rapidly both within and across boundaries, it becomes essential to record each transaction with a clear date and time stamp. The infinitesimal volume of transactions that takes place by the second and given the huge volume of documentation that it involves, is a clear indication of how expensive and time- consuming such a system can be.
Blockchain can hold these records digitally and get them updated in real-time. The technology can also be extended to smart contracts in the financial services space. A smart contract is a self- executable piece of code that runs when certain conditions written on it are completed.
When used for financial transactions, they are
helpful in increasing the speed and simplifying complex processes, ensuring the transfer of accurate information as the transaction will be approved only if all the written conditions of the code are met. Moreover, as these terms are visible to all the parties involved in the transactions, the chances of error at the time of execution are dropped drastically.
Big data, the petabyte cruncher
Gigabytes and terabytes are passé. In today’s commercial world, information is stored in a complex maze of data running into terabytes and petabytes. For information 1,024 gigabytes (GB) make one terabyte and as many terabytes make a petabyte— which essentially means that it takes a million GB to make a petabyte. The math doesn’t stop there. It takes a staggering one billion GB to make an Exabyte.
That’s the size of data large corporations are dealing with today. And ‘Big Data’, a technology that helps analyse and extract information from such complex data sets that conventional applications simply can’t handle is useful in a variety of ways such as data capturing, data storage and analysis, search, sharing, transfer, visualization, updating and information privacy.
The financial services industry has been using
Big Data to generate new revenue streams through data- driven offers, stay relevant by offering improved services supported by superior security in a space that FinTech companies seem to have begun dominating, and pare operational costs. FinTechs have, in fact, stolen a march over conventional financial service providers, using big data to offer unmatched levels of convenience, nibbling into the huge slice of the revenue pie by eradicating the pain points for customers in transacting. Mobile wallets such as PayTM and MobiKwik, for instance, have revolutionized the concept of payments- on-the- go, obviating the need for the customer to visit the bank, or even log on to the laptop to transfer money.
Internet of Things
One of the simplest, though not necessarily apt, ways to understand the Internet of Things is to gaze at your smartphone and just imagine stepping into a time-machine and seeing your device morph into a 2G handset that allows you to do little else than make calls and send text messages as you revisit an era gone by. No videos, little or no stored music...and no WhatsApp.
Wikipedia offers a technical definition of the term: IoT is a system of interrelated computing devices, mechanical and digital machines, objects, animals or people that are provided with unique identifiers (UIDs) and the ability to transfer data over a network without requiring human-to-human or human-tocomputer interaction. But here is something simpler: IoT involves connecting all home appliances such as refrigerators, air- conditioners and lighting systems, and other gadgets and gizmos such as mobile phones, and automobiles, and everything else under the sun to the Internet.
Connection to the Internet is what makes the device smart as it has the ability to both, send and receive information, without actually having to store it. The smartphone is just a rudimentary example of the power of IoT. The concept has opened up a floodgate of possibilities in logistics, financial services, automobiles and even agriculture. In fact, NASSCOM estimates that the IoT market in India is estimated to reach US$15 billion next year and will account for about five per cent of the global.
The concept has been widely used across sectors in India. Financial services is one area where IoT has had a huge impact, creating new avenues for borrowers looking for funds and for financing agencies looking for lower-risk lending opportunities.
A notable example of IoT- enabled lending is justin-time financing solution for logistics providers, in which a cab or truck operator is funded, based on its real-time GPS information tracked either through a GPS device or a mobile application. A trip in real-time is captured and once completed, it is funded instantly even before an invoice is generated by the operator.
In the auto-ancillary space, several tyre companies have come up with tyre financing schemes, called ‘ Tyres-as-a-Service’ for heavy motor vehicles, under which the vehicle owner does not pay a large initial capital at the point of procuring tyres. Instead, the sensors on the tyre continuously report the ageing data and the owner is charged periodically based on the consumption information.
IoT finds a place in agriculture as well, with crop insurance companies using data such as humidity/ temperature sensors along with drone imaging to process claims and calculate future premiums.
Back home, it is a slew of government initiatives, such as Digital India, Make-in-India and Smart Cities that are fuelling the IoT drive. They are perhaps providing the biggest push as it involves the use of IoT devices to manage crime, traffic, logistics, power and water supplies, health care and practically every aspect of the public welfare system.