Thevarious trends in the financial industryStudent’sNameInstitutional Affiliation
Thefinancial industry is a diverse mixture of banking and otherfinance-oriented businesses that contributor to the economy of acountry. Financial industries are the most developed in the UnitedStates of America. The industry contributed an average of 1.2trillion US dollars in the year 2015 and is predicted to have risenin the 2016 financial year. The industry contributes over 7% of thecountry`s GDP and revenue.
Thisresearch paper is intent on analyzing the trends that have mostimpacted the industry and is valuable as it provides the reader withan in-depth look at how the industry is likely to develop in the nearfuture.
Thefinancial industry has experienced technological advancements overthe past few decades. The progress seen in this vital sector of theeconomy has been brought about by the innovations and creativity ofsome individuals in the society. Such innovations undertaken byresearchers have come timely to counter the threats posed by hackersas this may cause leakage of relevant financial information of a bankor any other organization. Therefore, since banks are the majororganizations making up the financial industry, they have been forcedto spend more on the IT budget. This has been proven to be truesince, in the United States, nine out of the ten financialinstitutions have technology focused innovation centers. This paperthus discusses the influence technology trends, social trends,economic trends, and political trends to the financial industry.
Thematurity of technology has been seen to have positive effects on howfinancial organizations are managed. For instance, cloud computingwhich outlines policies of the firm has been seen to assist financialinstitutions to abide by the regulations concerning the utilizationof the cloud (Jaumotte, Lall, and Papageorgiou, 2013). Thecommunication procedures are clearly outlined to prevent the leakageof information to outsiders. Moreover, a cloud computing servicearrangement has enabled banks to spend less during times of change indata protection requirements. Firms which are beneficiaries of thistrend in technology are in Australia. This benefit has been realizedduring the segmentation of global bank in Australia which has led toa private cloud solution which ended up streamlining the lastoperations of the banks and creating flexibility during the operationof the banks (Jaumotte, Lall, and Papageorgiou, 2013).
Additionally,maturity in technology caused by innovation in the financial industryhas enabled large quantities of data to be stored to ensure customersatisfaction. The banks are using the large volumes of data in manyfunctions. One of them is to develop insights on proper management ofthe funds saved by the client, to inform the customers of the riskdecisions they may want to venture into and even develop new productsand services to ensure efficiency in service delivery (Jaumotte,Lall, and Papageorgiou, 2013). Therefore, they have replaced theancient method of writing down all the data of the company which wasnot only tiresome but inaccurate as it depended on human memory. Eventhough this large quantity of data is of importance to a bank, it maybe quite challenging to explain the significance of this data to thecustomer especially if they are illiterate. On the contrary, thisdata can be harnessed as a source of revenue when the spendingpatterns and activities of the bank are sold to third parties(Jaumotte, Lall, and Papageorgiou, 2013). The Australian bank usesthe stored information extracted from the customers to determine theright quality of the product, the price and even offering financialadvice to the client.
Besidesthe explained technology trends, cyber security has also beeninitiated in the financial industry to ensure the safety of thestored information. Also, privacy in communication between theemployees of the bank has been guaranteed. This step has beenincorporated by many firms apart from the financial industry becauseof the rising cases of cyber-crime in the society (Grossman, and Roy,2016). The rising cases are because of employees using their deviceswhile working on financial information of a company. Thesophistication of the cyber-attacks has decreased the rate at whichfirms grow economically and in actual size. It has been realized thatdigital crime and intellectual property theft currently range betweenUS$375b and US$575b per year (Grossman, and Roy, 2016). Even thoughcyber-threats are caused mainly by hackers, the major threat tofinancial institutions arises from organized cybercrime. Moreover,licensing, patents and copyrights aid in preventing one from stealinginformation from a financial institution since a firm may report suchan individual who dares to do so and one may face a harsh penalty.
Thefinancial industry is also affected by the social trends. The firstsocial trend in the finance industry is the confusing cost of thestructures. This trend has been known to affect mostly the investorswho find it difficult to compare investment fees with differentservice providers (Loh, Deegan, and Inglis, 2015). Despite thistrend, the establishment of the Effective Annual Cost has beenadvantageous to the investors since it breaks down and regulates theinvestments fees on products. This has thus allowed an easiercomparison between the services and the products. Although the EAChas multiple advantages, it must be included in the quotes andproposals. This is a requirement for all the new businessesestablished in the present times. The initiation of the EAC has madeit easier to understand the effect of the fees on the investedproducts (Loh, Deegan, and Inglis, 2015). This is essential as itgives the clients enough time to make sound decisions.
Theother social trend in the financial industry is the complex nature ofthe financial strength. This burden is very technical in thefinancial sector since it may act as a hindering block. Thissituation could have been influenced by the lack of the rightinformation offered to the investors (Loh, Deegan, and Inglis, 2015).Some are not even aware of the investment products, the performanceof the industry and the risks encountered by the decisions made bythe shareholders. Besides this limit, the establishment of theTreating Customers Fairly (TCF) has enabled various financialservices to communicate to clients in a way that individualsunderstand each other (Loh, Deegan, and Inglis, 2015). Moreover, TCFrelates to all financial services and the way structures areinitiated.
Thereare three economic trends which play significant roles in thefinancial industry. The first trend is the industrial productionwhich is critical in the GDP growth of various countries (Cingano,2014). An increase in industrial production has led to theestablishment of international trade and causing the strength of thedollar to increase. Moreover, because of increased industrialproduction, the level of inventories stored by a firm will increasethus, an increase in the storage costs. Additionally, the expenditureof the consumers has been seen to increase the economic level of anindustry. This is because the purchase of commodities from industrieshas been realized to increase the income of a firm and hencestrengthening the labor markets (Cingano, 2014). Although theconsumer spending has not enhanced the household cash flow, theincreased spending because of the confidence of the consumers hasresulted in much economic development.
Theother economic trend is the international trade which is key in theUS production and the world development (Cingano, 2014).Participation in international trade by various nations is reportedto be taking shape day in day out. However, in the past few years,there have been declining volumes of products that has led to thedecrease in production and caused fears of huge economic decline. Onthe other hand, the decline in production of products within acountry could have adverse effects on other sectors of the economysuch as health, education, and agriculture (Cingano, 2014). However,with stability in trade, domestic expenditure by citizens of acountry could cause economic growth and prosperity.
Thethird and the last economic trend in the financial industry is thechanging nature of the currency which poses a great challenge to theeconomic situation of a country (Cingano, 2014). The change incurrency has been largely attributed to the inflation experienced insome countries which cause prices of commodities to rise. Moreover,inflation has raised the level of interest rates in the United Stateswhile low-interest rates in other countries abroad have strengthenedthe dollar in such counties. The interest rate in the United Stateshas been observed to rise sharply without any forecasts predictingsuch abrupt changes (Cingano, 2014). In this scenario, theexpectations outlined in the forecasts may present faulty results ofwhat he rates may cause to the economy of United States. Also, theexpectations from an international perspective may present a falsepicture of the situation in a country. For instance, Europe hasopposed the monetary policies infused into it while the Japanesepolicy has been incorporated by the Japanese government with morecaution to avoid regrets of the consequences that may arise (Cingano,2014).
Onthe other hand, politicians and the government of a nation influencethe services and products rendered by the financial sector to theeconomy. Though the government does not directly affect the financialservices provided by this sector, it is solely concerned withregulating the activities of this industry (O’Halloran, Maskey,McAllister, Park, and Chen, 2016). The regulations entrusted upon theform in this sector means that the employees of this companies willhave a lot to do to comply with this regulation hence consuming mostof their time and efforts. On the other hand, government regulationsalso have benefits concerning the financial services of the industryin the long term. For instance, the Sarbanes-Oxley Act holds thesenior managers accountable to provide precise financial statements(O’Halloran, et. al, 2016).
Moreover,this act requires the establishment of internal regulations to avoidfuture fraud and abuse of funds belonging to the company by those inleadership positions. Even though the incorporation of thisregulation was costly, it offers more protection to investors who hasinvested and wanted to invest in this sector hence creating thatconfidence within them (O’Halloran, et. al, 2016).
Conclusively,the technology trends, social trends, economic trends, and politicaltrends initiated in the financial industry have had more benefitsthan losses. For instance, the regulations of the government areessential as they ensure that the wealth of the sector is not lootedby an individual but rather utilized by the common public. Withcontinuous innovation in the financial sector of the economy, therewill be minimum losses hence leading to economic growth andsustainability of a country. Also, parents have a role to play innurturing their children to become responsible citizens of a country,and this will reduce incidences of cybercrime in the society. Withall these measures taken into consideration, nations will enjoyfinancial stability and economic independence.
Cingano,F. (2014). Trends in income inequality and its impact on economicgrowth.
Grossman,S. A., & Roy, P. (2016). Learn the 5 keys to boosting theeffectiveness of your cyber security program. CampusLegal Advisor,16(8),1-6.
Jaumotte,F., Lall, S., & Papageorgiou, C. (2013). Rising incomeinequality: technology, or trade and financial globalization? IMFEconomic Review,61(2),271-309.
Loh,C. M., Deegan, C., & Inglis, R. (2015). The changing trends ofcorporate social and environmental disclosure within the Australiangambling industry. Accounting& Finance,55(3),783-823.
O’Halloran,S., Maskey, S., McAllister, G., Park, D. K., & Chen, K. (2016).Data Science and Political Economy: Application to FinancialRegulatory Structure. RSF.