How the Financial Service Industry Evolved through the Years

Gone are the days when people needed to wait in line just to get things done at their banks. Never again should one worry about rushing to the bank just to get everything done quickly and “conveniently.” Thanks to technological advancement in the world of banking, everything has drastically changed for the better.

Simply put, technology has merged with financial services so well that it has become its own bustling industry.

Although traditional banking still exists today, the financial service industry is leaning toward transitioning completely with the integration of technology. As the world seems to be brought closer and closer by the second, banking and other financial services are made more convenient with innovative systems that are designed to help each company meet the demands of today. Transactions are done faster, and customers are less frustrated by the waiting game.

While there are countless technologies being developed today for better customer experience and quality service, there are those that pushed the industry into a whole new level of convenient customer service.

Here we’ll list the innovations in the financial services industry, the various transitions they have undergone, and the different factors that led the entire financial services business to its current state. 

Primary Shift: Bank Card Convenience

During the earlier days of banking, checks and passbooks used to be a common option by almost every bank account owner. Later on, banks acknowledged that they needed to provide customers with something that was more mobile, something as good as money. Hence, bank cards were born.

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According to MasterCard, the first bank card was introduced by Brooklyn banker John Biggins in 1946. He fondly called it “Charg-It” and when customers used it for purchase, the bill was then forwarded to Biggins’ account. Afterwards, the bank reimbursed the merchant and obtained payment from the customer.

It turns out, Biggins’ simple idea shaped the whole future of the banking industry. The plastic credit and debit cards came soon after the “Charg-It”. Soon enough, other transaction cards were invented. ATM cards, fleet cards, and free gift cards became popular with different types of users.

Today, everyone seems to have bank cards on hand all the time, enabling them to pay a merchant for goods and services with one tap or swipe. Since almost everyone has a card or two, it is about time to know how bank cards of today work.

As everybody is aware, there are a variety of cards available for each person, depending on his or her needs. A credit card for example, is a payment card issued to users to enable the cardholder to pay a merchant for goods and services. All of this is possible based on the cardholder’s promise to the card issuer to pay the amoun, potentially with other agreed-upon charges.

What card issuers do is to create a revolving account and grant card holders a line of credit, from which the user can “borrow” money for payment to a merchant or as cash advance. The catch about credit cards is that there is a credit limit with every account, and a requirement to pay the cash borrowed within a specific period of time. All things considered, credit cards prove to be beneficial if maintained properly.

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The other popular type of bank card is the debit card. A debit card is slightly different from the credit card. It does offer the same convenience of a credit card, but works in a different way. Debit cards draw money directly from your checking account when you make the purchase. This means that when you purchase goods or services for a certain cost, it is placed on hold until the amount is deposited by the purchaser. This is why it may be best to keep a running balance on the debit card so that transactions may be done faster and more smoothly.

Second Gear: Mobile Banking

As the world of finance and banking moves forward to integrating technologies to make everyone’s transactions faster and more customer-friendly, the banking world has recognized that there is a next step toward helping people benefit from using bank cards.  The mobile industry has boomed in the last decade because of its convenience and connectivity. Now, most people could not live a day without their mobile phones. This is exactly why bankers and corporations needed to shift their business to second gear through mobile banking.

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Mobile banking has been many financial service corporations’ answer to the increasing demand for convenience and easier transactions. It is technically defined as a service provided by a bank or other financial institutions that permits customers to do financial transactions online. Using a mobile phone or tablet, banking is made available 24 hours a day. This is possible because of a developed mobile application that can be downloaded to mobile devices, depending on the user’s type of operating software.

The earliest recorded type of mobile banking used to be done in SMS. In  1999, smart phones were introduced into the market, which included WAP support that enabled users to connect to the internet. European companies made sure to take the first step, launching their mobile banking platform. However, with the rapid growth of mobile applications in the last decade, banking corporations evolved to produce applications that fully support banking processes such as viewing account details and previous transactions, balance inquiries, and fund transfers.

However, there is more to mobile banking than what exists right now. With the development of new technology and increasing use of smartphone and tablet-based devices, mobile banking can now enable customers to link their accounts across various aspects of their online life. Certain functionalities on the business end help create new ways of lead generation, prospecting, as well as developing deep customer relationships. Plus, the world of mobile banking would achieve superior customer experience with bi-directional communications.

Tertiera: Variety of Trading Platforms

As mobile banking made spending online more convenient and more accessible, many companies have also tried to tinker with the possibility of establishing various platforms where people can both earn and spend their resources. Usually launched online, these trading platforms allow the power of online banking and trading in one. One of the leading platforms in this regard is PayPal.

PayPal is an online payment service that allows individuals and businesses to transfer funds electronically. The idea behind PayPal is simple: Use encryption software to allow people to make financial transfers between computers. That simple idea has turned into one of the world’s primary methods of online payment.

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PayPal now boasts over 100 million active accounts in 190 markets worldwide. Anyone can send funds to anyone with an email address, whether they have a PayPal account or not. However, in order to receive the funds, the recipient must have a PayPal account associated with a specific email address. Basic PayPal accounts are free, and many financial transactions are free as well, including all purchases from merchants that accept payments using PayPal.

Even the best technology companies lean towards playing a part in this trading platform. Google Wallet, a renowned platform in the United States, boasts the same capabilities, enabling users to wire money even if the recipient has no Google Wallet account. Payza, Paymate, PayMaya and many other platforms are taking part in this bustling business, enabling customers to choose from a wide variety of brands.

It can be expected that banking technology will only move forward from here, with a goal to make it even more convenient for more customers all around the globe.

The Pros and Cons of Angel Investing

The idea of being an angel investor is really tempting, and many angel investors have found a lot of success with their endeavors. Technically, angel investors are those who invest in small startups or entrepreneurs, and often, they are among the entrepreneur’s family and friends. The angel investors may provide a one-time investment to help the business propel or an ongoing injection of money to support and carry the company through its difficult early stages.

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They are called “angels” for a reason. Angel investors, according to other definitions, are also called informal investors, angel funders, private investors, seed investors, or business angels. They are usually affluent individuals who inject capital for startups in exchange for the company’s equity or convertible debt. Some angel investors invest through crowdfunding platforms online or build angel investor networks to pool in capital.

The biggest takeaway as to why most people would consider becoming an angel investor is that being a private investor allows for more favorable terms for both parties as compared to becoming a lender. Lenders would normally invest on the entrepreneur starting the business rather than the viability of the business itself. As an angel investor, they are more focused on helping startups take their first steps, rather than the possible profit they may get from the business.

Essentially, angel investors are the opposite of venture capitalists.

However, there are still challenges that could come along with this investment. It’s like when you get a physical gold IRA or simply invest in the stock market – you need to have a certain level of risk appetite to take on those challenges.

As such, before you decide to go out and start helping entrepreneurs, find out the pros and cons of becoming an angel investor to make sure that you make the most out of your investment money.

Pros:

You do become the Angel that a startup business needs

Becoming an angel investor would mean that you can really make one’s dream a reality. When entrepreneurs have exhausted money from friends and family, personal savings, bank loans, and credit cards for their startups, they may seek angel investors to help them fill their needed equity gap. According to studies, nearly 2/3 of funding for new enterprises is obtained from angel investors. Therefore, angel investor capital can provide a great source of funding for new businesses that have a high potential for growth.

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Flexible Business Agreements

Becoming an angel investor can yield the most flexible business agreement, and you can always get the better end off of a startup business. Angel investors have a more informal investment criteria compared to the traditional financial lenders, including banks and venture capitalists. Since they are investing their own money, their business deals can often be negotiable. Because of this flexibility, they are more likely to be excellent sources of capital for early-stage businesses.

Raising Capital Continuously

Most early-stage ventures require small amounts of money, typically less than $500,000. Angel investors can provide this needed amount by using their own personal funds for the investment. This really gives a lot of mileage for startup businessmen because of the higher potential for more capital. Venture capitalists, on the other hand, typically pool money from different sources, generally invest in later-stage companies that have already established stability and success, and invest in enterprises in need of at least $500,000 to $1 million.

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Getting Rid of High Monthly Fees

Another benefit from raising an angel capital is that there are no outstanding payment rates such as the ones that bank loans and credit cards require. Many entrepreneurs enjoy this element of angel investors, concentrating their time and effort into taking their new business forward rather than worrying about high monthly payments and fees that traditional lenders enforce. It’s like you’re passively gaining the income while getting rid of that extra hassle of outstanding fees.

High Risk, But Definitely High Rewards

You can consider this as either a pro or a con. Angel investing is definitely a high-risk maneuver, but surely a highly rewarding experience. An angel investor’s capital in a new business is considered to be a high-risk investment since the new company has not yet established a solid track record of success. Since they often provide the initial funding for a new company, it can be quite difficult to determine if their invested enterprise can become successful in the long run. Despite the fact that most new businesses fail in their initial years, angel investors tend to be quite optimistic about their investment choices and often request a large amount of returns to counterbalance the risk.

Providing Money That’s Not a Loan

As you take out your small business loan, your bank expects you to repay it, whether the venture succeeds or not. As an Angel investor, you operate inside a different framework. You offer the capital needed to get the ball rolling. The startup businessman would definitely feel blessed because of your existence, especially when most banks would decline him off a business loan. Surely, if the startup takes off, both parties reap the financial rewards. Then again, this might also be considered a con: while providing lesser headaches for the startup businessman, essentially giving away your money without definite collateral might fire back at you when the company falls flat.

Helping Others, Especially the Community

Many angel investors choose to invest locally – therefore, as an angel investor, you are extending your help to someone as they grow inside the community. The capital investment that Angel investors provide for a new business not only assists the launch of a new enterprise, but also helps create employment opportunities and stimulate economic growth by encouraging consumers to purchase their products. Many angel investors take pride in using their expertise in giving back to their community. These are the angel investors who look beyond monetary return.

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Cons:

No Recognition

Anonymity can either be good or bad for Angel investors. While there are well-documented directories of venture capital firms available, there is no national register for angel investors. Due to these differences, angel investors do not have the national recognition as their venture capitalist counterparts. They remain hidden and mysterious but choose to do so in order to have a degree of separation from entrepreneurs who may pester them with their business plans and telephone calls.

Extremely High Risk

Like mentioned before, becoming an Angel investor is a very high risk. Sure enough, you can gain a good amount of control to the business venture, but oftentimes, this wouldn’t be enough to necessarily steer the startup venture in the right manner. Also, the business enterprise could easily fail because you’re making a deal with startups. While everybody has to start from somewhere, not all startup entrepreneurs are good, and they can even be too ambitious for their own good. The high risk of becoming an angel investor may easily be rewarded with results, but they are risks nonetheless.

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Becoming an Angel Investor is Quite Costly

In exchange for providing the needed startup capital for a new company, many angel investors often require a certain percentage of stake in a company, starting at 10% or more, and expect a large ROI for their exit. However, as mentioned earlier, becoming an angel investor requires a huge amount of investment with no return in a short amount of time.

3 Financial Tips for Business Starters

Starting up a new business presents a variety of challenges that not only extends to the physical and mental side of things but also to the financial facet of the professional endeavor. Business planning and market studies involve intricate methods that need a lot of mental fortitude. The truth is that establishing a start-up business requires ample amount of time and actual physical presence for any involved business owner in order to check if everything is going as planned.

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The bottom line is that one of the most important factors to check is whether the business’ finances actually balance out. Simply put, money and financial management eventually become the deciding factor if starting a business is feasible in the first place.

Start-up business owners and aspirants alike are having a hard time finding out solutions to the challenges of these hard economic times. This is the main reason why anyone who’s aspiring to be a success in the field of business should look to inform themselves about some important financial tips that can actually make a difference in their work. In this regard, these financial tips and tricks that for startup business owners can help guide the any entrepreneur find their footing in the business world:

Financial Management Starts Personally

One thing that stands out as a part of the basics for any successful business is that a business should minimize expenditures and maximize profits. Business owners do the best that they can to cut luxurious services or even redundant equipment in their establishments, while still producing at the optimum level.

Then again, being money-smart is not a one-time thing if a person really wants to be a significant player in the market. It should be part of a consistent attitude that roots from culturing one’s self to be financially wise. Thus, financial management starts personally.

Financial advisers would always tell their clients that there are a variety of ways on how to handle their finances. It should take into account both the present and future of one’s money management.

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This is where saving comes in. Saving is an important facet in everyone’s financial status. This is highly critical especially when financial problems arise or the business may not be going too well. In fact, these unfortunate circumstances serve as the perfect moment when saved money presents its best benefit.

An alternative method of saving is investing. Investing is an integral for any individual, especially for those who wants to make it big in the long run. As such, investing early is much more preferred since money does require time to grow.

But where does one invest?

Banking is the most common used approach for saving money, and is in fact a form of investing in itself. Over time, money saved in a bank account can accumulate interest. Similarly, investing money in the stocks market can also be an option for those who want to involve themselves in trading.

While everything mentioned above tackled gains, financial management also puts a highlight on considering future events like retirement. Being able to get an individual insured is one of the better things when it comes to finances. Getting an insurance policy which entitles a person financial protection or reimbursement against losses is imperative for a money-smart individual.

Taking this into consideration, insurance serves as an individual’s protection from the risks of financial losses, damages or liability from damages caused by a third party. Insurance companies can vary in wide arrays, but the most significantly popular ones involve health and protection. The truth is that rigorous medical examinations are involved in getting the actual policy, but smarter people opt to take advantage of no exam life insurance which is much simpler.

Whatever form of investment one opts to go for, at the end of the day, using money to earn more money is a good set-up for any business.

Breakeven is not Necessarily Bad

The ultimate goal of any business is to gain profits consistently. However, before any real gain happens in a business, the inevitability of losses should also be considered since business may not be flourishing every time.

Losses are particularly hard to take especially for starting businesses, since it might bring about professional discouragement. While there are various possibilities in business, there comes a point when everything just ends up leveling to zero –no gains, no losses. Simply put, breakeven.

The bigger question now presents itself – is breakeven bad? The answer is not necessarily so. The actual decision whether it is good or bad comes from the circumstance it is in. If breakeven points come at a time when the business incurred losses from the months before, then it might be a good thing. If a business is consistently breaking even from the start, then it may be time to rethink about the business model of one’s establishment. Breakeven is studied deeper in economics. This is called break-even analysis.

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Break-even analysis is used to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.

Break-even analysis is a supply-side analysis; it only analyzes the costs of the sales. It does not analyze how demand may be affected at different price levels. The break-even point is the point at which gains equal losses. Reaching the break-even point is a business’s first step toward profitability.

Good Profits with Better Business Partners

Establishing a new business is not always a one-man team. Often times, it comes as a result of collaboration from business partners with the same goal: to gain higher profit. Business partnering is not new. However, as today’s business world becomes more uncertain and more volatile, the imperative for business partnering is greater than ever.

The Chartered Institute of Management Accountants (CIMA) defines business partnering as a finance professional who works alongside other business areas, supporting and advising their strategic and operational decision-making through insights that drive better business. The speed and quality of decision-making is becoming increasingly essential to a business’ success, and may actually be that competitive edge they need. New research with senior executives from around the world identified a common need for faster, better decision-making processes.

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Real business value is created through knowledge, intellectual property, collaboration and partnerships throughout the company. Now, more than ever, financial leadership has an opportunity to contribute tangibly to the success and future of the business. However, they can only do this successfully if they are effective business partners, which require a special set of both technical and behavioral skills: an understanding of the business and what is actually driving the numbers, as well as good people and leadership skills.

Before anything else, getting a good business partner should be done carefully and with proper thinking. Because partners join forces for a variety of reasons and expectations, sometimes, the strengths of each individual may be overlooked. The most obvious strengths are evidently recognized; however, underlying strengths, when effectively brought out, can often make a big difference in long term motivation, commitment and success.

Each person in the partnership has his own reasons for being in the business endeavor. Sometimes, people seek a partner for capital, expertise, and even connections. These are not always expressed, yet they remain as an underlying expectation. If the expectation isn’t met, the relationship can become strained.

Because each person’s expertise, motivation and personality are different, it’s important to have this discussion before anything is committed contractually.