Let’s try and list what have been the best innovations to come out of the financial industry in recent times (let’s say last 15 years). We’re going to use the term “best” as what that drove value (profit/growth), while not being considered to have had or have a potential for substantial negative impacts, which might be introducing systemic risk or creating perverse incentives.
Financial technology is innovating in and disrupting an expanding number of areas in the financial sector. In the trading sense, there have been multiple innovations in the area of structured finance in recent years. For example, the first Exchange Traded Note product was introduced in 2006.
Another example of a new product would be the exchange-listed dividend futures available on some European equities and most major indices.
More recent attempts (it’s unclear at this point if they will mature to a point where they have enough liquidity) are the introduction of exchange-listed variance swaps and volatility swaps.
Other interesting products of recent introduction include correlation swaps, vol of vol products (such as options on the VIX index), forward volatility agreements, swaptions, etc.
In corporate finance, some of the more important recent innovations are in the area of MLPs (Master Limited Partnerships). While the first MLP was introduced in the 80’s, the last 10 years have seen a significant increase in their popularity. Also in the last 10 years were the first publicly traded partnerships (not energy related), such as the flotation of private equity groups (I believe Fortress was the first one to list).
Despite the many changes to payment processing methods, brand-new systems that were ushered in not long ago are already are widely used for everyday cash flow. The recent developments we should pay attention to are the following:
Cryptocurrency on the march
As a way to manage online payments, cryptocurrency is of huge interest to investors. Bitcoin remains at the top of the heap as a trusted cryptocurrency and as it becomes more widely accepted and valued, cryptocurrency can only continue to grow by leaps and bounds through 2017. With more and more types of cryptocurrency being developed, it’s only a matter of time before we start to see the wide acceptance of other cryptocurrencies and potentially even a financial institution will come up with its own version of a cryptocurrency for customer use.
Online business lending
By using big data, a catalogue of credit ratings, secure information and more on every consumer, the process of online business lending is becoming much easier. A number of financial institutions have set up sites for small loans, and banking and credit card applications all aimed at small businesses and individuals. Rather than having to go into a financial institution to apply for a business loan, it’s now possible to fill in forms online and receive almost instant approval to start up a business. Third-party companies are using this same system to provide more opportunities and greater competition in the commercial loans market.
Cloud servers and “big data”
Moving data sets that are especially large or complex to cloud servers with point-of-sale (POS) applications and financial institutions could offer a number of huge changes that will have a positive impact on customers. This data could help improve security on every transaction, simplify the shopping experience, and make applications for loans or registers for new accounts much simpler. With wider access to big data on each consumer, marketers can enjoy better information to sell products and consumers can enjoy a much greater level of user-specific design and experience. Of course, the big challenge with big data is to manage security and privacy alongside data capture.
NFC mobile payments spread
Contractless mobile payments have become extremely popular throughout Europe and elsewhere. Mobile payment systems using Near Field Communication or NFC are now widely recognised for basic consumer’s uses, such as the London tube, cafés and restaurants, and more. “Contractless” is the hot term that’s being used to push this form of payment.
Do you think of any other noteworthy recent innovations in the area of finance? Let us know in the comments and in our Social Media Channels!
