“Uberization” wave hits the financial sector
The spread of IT and digitalization has been particularly striking since the millennium. Not only did the advent of the Internet revolutionize the very basis of telecommunications, IT is also spreading into various fields and production technology is developing apace. Thus, a major revolution is underway that is not confined to any particular domain.
The forward march of IT activity is set to greatly change the shape of “money”, a core element of the economy, and it was the world of non-cash financial transactions that was first to experience comprehensive transformation in the baptismal fire of IT revolution. Bank transfers, for example, have been handled by computers since the 1970s.
Further change is currently underway. IT is set to dramatically transform the shape of non-cash financial transactions, which control the very nature of capitalism; the value of electronic money settlements has expanded to over Y5trillion. One aspect of this process is “FinTech”. In this article, I intend to gain an insight into how the financial sector is being changed by IT, as a way of “reading the future of capitalism.”
FinTech shakes up the power balance in the financial sector
FinTech is a word derived from “finance” and “technology” that is already in common use, and has gathered attention recently as a possible threat to the conventional financial sector.
Different from financial institutions moving online, the impact of the much-discussed FinTech can also be seen in fields that used to be the responsibility of financial institutions, such as loans to individuals and mobile payment. As a result, it has the potential to cause great change in the financial field.
In concrete terms, there is a move to create customized services that meet the individual requirements of personal customers and of small and medium businesses. Small organisations such as start-ups, rather than big organizations such as the major financial institutions of the past, are the driving force behind FinTech, which is another reason that it is attracting wide-ranging attention.
In a report published in September last year, US consulting firm McKinsey forecast that over the next ten years FinTech will depress bank sales by 40% and bank profits by 60%. “Uberization” is thus also sweeping into the world of finance and has the potential to change the structure of finance, which controls trends in the economy as a whole.
FinTech API tie-ups to give rise to new economic order?
“FinTech” cooperation is likely to change how money flows. Recent cooperation between web services and IT systems in the shape of Application Programming Interfaces (APIs) is likely to lead to new types of “FinTech”.
An easy way to understand APIs is to think of how gourmet dining and travel sites tie up with Google Maps, to show the location of their stores. APIs mutually connect various online services.
Many financial institutions are already involved, and there are increasing moves toward “open APIs”, which allow access to, and use of, a company’s IT systems via external networks. Thus, an “API economy” is now being visualized, linking the technological assets of mutually connected systems. There is a vision of a future in which, by working together, FinTech operations with little influence and with micro capability can create greater value.
It is too soon to know whether the number if IT venture capital companies in finance will grow, impacting the control exerted by banks. However, there is no doubt that the financial industry will be forced to undergo a great transformation. For customers, the introduction of APIs will bring speedy provision of various services. However, for businesses, there will be pressure from new competition, and neither is the future shape of FinTech influence as yet determined.
How will the new era impact people, localities, nations, and the world?
Capitalism is currently suffering from the chronic maladies of expanding inequality, expansion of the purely financial economy, and depletion of new demand. Cutting-edge technology, most notably in the IT field, could give rise to a new socioeconomic paradigm. We have looked at the road map for the journey in search of this “ray of hope”.
An example of a “smart economy”, where marginal cost is zero, would be Qatar, which provides a free high quality welfare state thanks to its oil wealth. However, Qatar relies on foreign workers who outnumber the local population and whose role is shamefully close to that of the robots in an AI economy.
The paradigm shift to an actual utopian reality of a smart economy will not occur overnight. A long and difficult “transition process” will be inevitable, with many a clash with the old era. There is also danger that the “smart economy” itself may change into an overly controlled digital dystopia with AI on the rampage. Nevertheless, the broad direction of travel is very clear from the various changes underway in both the real economy and the financial world.
First, there is the change in the motivation behind economic behaviour due to the arrival of the sharing economy. There is a shift from maximization of “capital and earnings” to maximization of “value and satisfaction”. Materialism is out of vogue, and there is a new set of mainstream values that seeks happiness in “access rather than ownership” and in “common cause and sympathy with others”.
Second, there is the change in the organizational principles of society. The pyramid-shaped society with central government, big capital and big business at the apex is gradually fading. Instead, a lead role in society seems increasingly to be played by the people in all their diversity linked to region and culture, and by small business and NPOs that tie up and cooperate flexibly across national borders.
Third, there is the reduction in the role of the state and the change in the nature of that role. The “smart economy”, integrated globally by the Internet of Things and not motivated by maximization of assets and profits, is already reducing the function of “market competition” and “government control”. Already, it is not national governments that move economic systems but rather the efforts of communities.
However, until the recent technological revolution permeates to virtually all areas of the globe, it is unlikely to be possible to achieve the organization needed to tackle global issues that can only be overcome by “technology” (such as climate change, economic disparity between regions, and the size and distribution of the global population).